(ICON)
Prudential
Utility
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1995
(LOGO)
<PAGE>
Prudential Utility Fund, Inc.
Performance At A Glance.
Utility prices surged in 1995, powered by falling long-term interest rates and
industry-wide cost cutting. U.S. utility stocks fared particularly well. The
Prudential Utility Fund participated in this rally and returned a robust
25.7% (Class A shares) last year. However, the Fund had a larger than
average exposure to foreign utility stocks in a year when the U.S. market
was dominant, causing its performance to moderately trail the average
utility fund, according to Lipper Analytical Services, Inc.
<TABLE>
Cumulative Total Returns1 As of 12/31/95
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 25.7% 77.5% N/A 77.3%
Class B 24.8 70.9 224.8 758.3
Class C 24.8 N/A N/A 17.0
Lipper Utility Fund Avg3 27.3 77.3 178.6 520.6
<CAPTION>
Average Annual Total Returns1 As of 12/31/95
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 19.5% 11.0% N/A 9.2%
Class B 19.8 11.2 12.5 16.1
Class C 23.8 N/A N/A 11.8
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Source: Prudential Mutual Fund Management and Lipper Analytical Services.
1 The cumulative total returns do not take into account sales charges.
The average annual returns do take into account applicable sales charges.
The Fund charges a maximum front-end sales load of 5% for Class A shares
and a contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and
1% for six years, for Class B shares. Class C shares have a 1% CDSC for
one year. Class B shares will automatically convert to Class A shares
on a quarterly basis, approximately seven years after purchase.
2 Inception dates: 1/22/90 Class A; 8/10/81 Class B; 8/1/94 Class C.
3 Lipper average returns are for 78 funds for one year, 21 funds for
five years, seven funds for 10 years and four funds since inception
of the Class B shares on 8/10/81.
How Investments Compared.
(As of 12/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total return averages for several Lipper mutual fund categories
to show you that reaching for higher yields means tolerating more risk.
The greater the risk, the larger the potential reward or loss. In addition,
we've added historical 20-year average annual returns. These returns assume
the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller capitalization stocks
offer greater potential for long-term growth but may be more volatile than
larger capitalization stocks. Investors have received higher historical
total returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds, which can help
smooth out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower
than those of stock funds. Unlike bond funds, bonds, if held to maturity,
offer a fixed rate of return and fixed principal value.
Global Stock Funds will also fluctuate a great deal. However, investments
overseas are subject to political, social, and currency risks that may
affect performance.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been
generally among the lowest of the major investment categories.
<PAGE>
David A. Kiefer, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Prudential Utility Fund invests in stocks of utility companies,
primarily electric, natural gas, gas pipeline, telephone and
telecommunications, water and cable companies, both in the U.S.
and abroad. Utility investments can be affected by government
regulations, the price of fuel and environmental factors. Foreign
investments are subject to additional risks, including social,
political, economic and currency risks.
Strategy Session.
We positioned the Prudential Utility Fund in three specific areas where
we saw long-term appreciation potential as well as the potential for
strong current income. We liked natural gas stocks, because they represented
the environmentally-friendly fuel of the future. We also saw opportunities
in select electric utilities, because we thought their prices had fallen
more than warranted by the specter of deregulation. Finally, we liked
foreign utility stocks because we expected greater long-term
appreciation potential.
- - -- Our natural gas holdings rose exceptionally well, as snow blanketed
the east coast before the leaves had finished falling, prompting many
homeowners to raise their thermostats. We believe this cold weather merely
highlighted the positive story in the natural gas industry: long-term
demand for natural gas is rising at 3% to 4% a year, while exploration
has not been particularly aggressive. The result? While chilly homeowners
paid more for gas heat, the stocks of companies that produce new
supplies of natural gas as well as those that distribute it did well,
and this should continue.
- - -- We liked select electric utilities. While talk of deregulation was
popular a year ago, many states have learned that implementation would
be quite complicated. As a result, electric utility companies now have
more time to prepare for open competition for customers than previously
thought. This could allow for modestly positive corporate earnings growth
from these companies in 1996, particularly since they have already
started to cut costs.
- - -- Foreign utility stocks looked good to us because demand for utilities
in many countries is rising faster than in the United States. Unfortunately,
in 1995, these stocks did not perform as well as we'd hoped. Still, they
bounced back strongly in December after the worldwide interest rate cuts,
reinforcing our positive analysis of these holdings.
Sector Breakdown.
Prudential Utility Fund
as of 12/31/95.
(PIE CHART)
Putting 1995
In Perspective.
The financial markets posted extraordinary returns in 1995. While investors
celebrated this performance, few expect last year's returns to repeat in
1996. It is important to maintain realistic expectations about the future
- - -- differences in yearly returns highlight the importance of diversification
and professional management. Please see page 2 for more information.
<PAGE>
What Went Well.
Natural Gas Stocks Rose.
We have believed in the long-term potential of natural gas -- the clean
burning fuel -- for some time. These stocks were undervalued for much of
the last decade, and we expected them to appreciate. Helped by 1995's
early onset of winter, they did. Here are some of our natural gas holdings
and their 1995 performance:
- - -- Columbia up 85%.
- - -- Williams Companies up 78%.
- - -- Coastal up 48%.
- - -- Panhandle Eastern up 44%.
Some Electric Utilities.
For some time, we avoided U.S. electric utility stocks because we
feared deregulation, which could bring competition and short-circuit
earnings growth. But when it appeared that deregulation would proceed
slower than expected, we stepped up our purchases of select electric
utilities, increasing our holdings to 39% (worldwide) at year end.
While we are still cautious about these stocks, we do believe that
select electric utilities will surprise the market with higher than
expected earnings in 1996.
And Not So Well.
Foreign Holdings
Disappoint.
We held 23% of net assets in foreign utilities for much of the year.
Why? We expected much stronger economic growth in some overseas markets
than in the U.S. and valuations in other markets were more attractive
than their U.S. peers.
Unfortunately, our foreign utility stock holdings, while providing some
income in 1995, did not perform or appreciate as well as our U.S. utility
stocks. Because our foreign holdings were substantial, we missed
opportunities to further increase our assets in U.S. electric utility
and telephone stocks, which would have improved our performance.
We Wish We Had
Bought More Phones.
We bought telephone stocks fairly heavily last year -- but we should have
bought more. Telephone stocks rose 42% worldwide in 1995, fueled in part
by the general boom in technology stocks. At year-end, telephone stocks
amounted to 20% (worldwide) of your Fund's total net assets.
Looking Ahead.
We expect several factors to work in our favor in 1996. First, U.S.
interest rates will probably remain stable and may even continue to
decline. At the same time, slower economic growth is likely. In this
setting, we can expect the dividends of utility stocks to make them more
attractive. Second, foreign interest rates may continue to fall in Canada
and Europe, where local economies are slowing. The foreign markets have
underperformed U.S. markets for two years now. We don't expect to see
that again in 1996. Last, we expect continued strong performance from
our natural gas stocks, as demand for this environmentally-friendly
energy source rises.
We will be closely monitoring the economy and market conditions in
1996. Should they shift unexpectedly, we won't delay in making a mid-course
correction.
Five Largest Equity
Holdings.
3.7% Sonat
Natural Gas
3.2% Panhandle Eastern
Natural Gas
3.2% Coastal Companies
Natural Gas
3.2% Williams Companies
Natural Gas
2.7% Columbia Gas System
Natural Gas
Expressed as a percentage of total net assets.
1
<PAGE>
President's Letter February 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond
funds enjoyed healthy returns from the U.S. markets. While climbing
returns can tempt even the most skittish investors to start buying again,
it is important to remember that the stock and bond markets go down just
as they go up. At times like these, remember the importance of working
with your Financial Advisor or Registered Representative to help you find
investments that are consistent with your risk tolerance and time
horizon. Your Financial Advisor or Registered Representative can help
you maintain realistic expectations about both the potential performance
and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation
before Congress, such as the American Dream Savings Account, that may
potentially impact mutual fund investors. We want to make it easier for
you to share your views with your Congressional member. So, beginning in
1996, whenever Congress is considering legislation that would affect you,
we'll send you postage-paid message cards that you simply drop in the
mail if you want to let your senator or representative know how
you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be
considering "fund profiles." Some mutual fund companies now offer
one to shareholders along with a full prospectus. The purpose of a
fund profile is to provide a very brief, reader-friendly summary of
a fund's objective, investments, risks and expenses. Would you like
to see fund profiles from us? Please call your Financial Advisor or
Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of December 31, 1995 PRUDENTIAL UTILITY FUND
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- - ------------------------------------------------------------
LONG-TERM INVESTMENTS--98.1%
COMMON STOCKS--94.2%
- - ------------------------------------------------------------
Communications--19.9%
1,500,000 AirTouch Communications, Inc.(a) $ 42,375,000
1,152,200 AT&T Corp. 74,604,950
469,800 BCE Inc. 16,208,100
330,000 Frontier Corporation 9,900,000
3,060,900 MCI Communications Corp. 79,966,012
375,000 Millicom International Cellular
S.A. (Luxembourg)(a) 11,437,500
1,700,000 NYNEX Corp. 91,800,000
398,000 Philippine Long Distance Telephone
Co. (ADR) (The Philippines) 20,720,875
693,700 Portugal Telecommunications, S.A.
(ADR) (Portugal)(a) 13,180,300
79,100 PT Indonesian Satellite (ADR)
(Indonesia)(a) 2,887,150
2,019,200 Southern New England
Telecommunications Corp. 80,263,200
1,419,300 Sprint Corp. 56,594,587
19,500,000 Stet-Societa Finanziaria
Telefonica, S.P.A. (Italy) 55,061,713
1,991,700 Tele Danmark (ADR) (Denmark)(a) 55,020,712
573,400 Telebras (ADR) (Brazil) 27,164,825
10,722,500 Telecom Italia, S.P.A. (Italy)(a) 17,844,059
2,474,000 Telefonica de Espana, S.A. (ADR)
(Spain) 103,598,750
1,561,500 Telefonos de Mexico, S.A. (ADR)
(Mexico) 49,772,813
---------------
808,400,546
- - ------------------------------------------------------------
Electric Power--38.9%
1,558,927 AES Corp.(a) 37,219,382
809,000 Boston Edison Co. 23,865,500
512,900 California Energy Company, Inc.(a) 10,001,550
981,300 Central Louisiana Electric
Company, Inc. 26,372,438
1,179,500 Central Maine Power Co. 16,955,313
3,532,685 Cinergy Corporation 108,188,478
3,058,000 CMS Energy Corporation 91,357,750
948,202 Companhia Energetica de Minas
Gerais-Cemig (ADR) (Brazil)(a) 21,216,020
17,779,000 Consolidated Electric Power (Hong
Kong) $ 32,304,552
1,326,700 DPL, Inc. 32,835,825
896,300 Eastern Utilities Associates 21,175,088
1,649,700 El Paso Electric Company(a)/(b) 560,898
1,247,700 Empresa Nacional de Electricidad
S.A. (ADR) (Spain) 71,430,825
2,820,702 Entergy Corporation 82,505,533
299,300 Evn Energie - Versorgung
Niederoesterreich AG (Austria) 41,012,169
1,330,300 General Public Utilities
Corporation 45,230,200
865,000 Huaneng Power International, Inc.
(ADR) (China)(a) 12,434,375
9,831,000 Iberdrola (Spain) 89,662,791
3,269,100 Illinova Corp. 98,073,000
2,050,600 KENETECH Corp.(a) 3,332,225
6,000,000 National Power PLC (United
Kingdom)(a) 41,878,882
1,589,400 New York State Electric & Gas
Corp. 41,125,725
967,000 NIPSCO Industries, Inc. 36,987,750
1,778,500 Northeast Utilities Co. 43,350,938
573,000 Oester Elektrizita (Austria) 34,354,489
2,000,000 Ohio Edison Co. 47,000,000
700,000 Pacific Gas & Electric Co. 19,862,500
2,578,600 Peco Energy Co. 77,680,325
2,303,400 Pinnacle West Capital Corp. 66,222,750
2,057,000 Public Service Company of New
Mexico(a) 36,254,625
1,355,200 Public Service Enterprise Inc. 41,503,000
910,000 Rochester Gas & Electric Corp. 20,588,750
1,098,100 Sithe Energies, Inc.(a) 6,588,600
1,526,100 Texas Utilities Co. 62,760,862
3,096,800 The Southern Company 76,258,700
7,453,700 Tucson Electric Power Company(a) 24,224,525
1,180,500 Unicom Corp. 38,661,375
---------------
1,581,037,708
- - ------------------------------------------------------------
Natural Gas--34.4%
283,650 Bay State Gas Co. 7,871,288
2,231,600 British Gas PLC (ADR) (United
Kingdom) 87,311,350
450,000 Burlington Resources, Inc. 17,662,500
3,526,275 Coastal Corp. 131,353,744
</TABLE>
- - -------------------------------------------------------------------------------
See Notes to Financial Statements.
3
<PAGE>
<PAGE>
Portfolio of Investments as of December 31, 1995 PRUDENTIAL UTILITY FUND
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- - ------------------------------------------------------------
Natural Gas (cont'd.)
2,529,668 Columbia Gas System, Inc.(a) $ 110,859,386
407,200 Consolidated Natural Gas Co. 18,476,700
117,600 Eastern Enterprises, Inc. 4,145,400
1,299,100 El Paso Natural Gas Co. 36,861,962
500,000 Energen Corp. 12,062,500
417,900 Enron Corp. 15,932,437
599,700 Enron Oil & Gas Co. 14,392,800
3,272,300 ENSERCH Corp. 53,174,875
1,500,000 Equitable Resources, Inc. 46,875,000
690,300 KN Energy, Inc. 20,104,987
703,600 MCN Corporation 16,358,700
810,600 NICOR Inc. 22,291,500
3,148,000 Noram Energy Corporation 27,938,500
700,000 Oryx Energy Co.(a) 9,362,500
3,544,300 Pacific Enterprises 100,126,475
4,722,800 Panhandle Eastern Corp. 131,648,050
117,600 Providence Energy Corp. 1,999,200
1,880,400 Questar Corp. 62,993,400
4,177,100 Sonat, Inc. 148,809,187
205,400 Southwest Gas Corporation 3,620,175
802,500 Talisman Energy, Inc. (Canada)(a) 16,247,023
857,700 Tejas Power Corp.(a) 7,826,513
7,700,000 TransCanada Pipelines, Ltd.
(Canada) 106,513,375
2,200,000 Westcoast Energy, Inc. 32,175,000
2,932,341 Williams Cos., Inc. 128,656,461
161,150 Yankee Energy System, Inc. 4,069,038
---------------
1,397,720,026
- - ------------------------------------------------------------
Realty Investment Trust--0.5%
31,200 Charles E. Smith Residential
Realty, Inc. 737,100
700,000 Equity Residential Property Trust 21,437,500
---------------
22,174,600
- - ------------------------------------------------------------
Transportation--0.5%
310,800 Flughafen Wien AG (Austria)(a) 20,909,622
---------------
Total common stocks
(cost $3,028,784,679) 3,830,242,502
---------------
PREFERRED STOCKS--0.2%
- - ------------------------------------------------------------
Electric Power
440,000 KENETECH Corp., Convertible, $2.18 $ 742,500
- - ------------------------------------------------------------
Natural Gas--0.2%
48,442 Columbia Gas System, Inc.(a),
7.89% 1,162,608
298,200 Enron Corp., 6.25% 7,156,800
---------------
8,319,408
---------------
Total preferred stocks
(cost $15,635,793) 9,061,908
---------------
Principal
Amount
(000)
BONDS--3.7%
- - ------------------------------------------------------------
Electric Power--1.0%
$ 5,000 Arkansas Power & Light Co.,
10.00%, 2/1/20 5,385,500
10,000 Cincinnati Gas & Electric Co.,
10.20%, 12/1/20 10,575,100
10,000 Cleveland Electric Illumination
Co.,
9.375%, 3/1/17 9,965,500
10,000 Niagara Mohawk Power Corp.,
9.50%, 3/1/21 9,558,000
5,000 Texas Utilities Co.,
9.75%, 5/1/21 5,893,300
---------------
41,377,400
- - ------------------------------------------------------------
Natural Gas--2.7%
20,000 Arkla, Inc.,
10.00%, 11/15/19 22,200,000
Burlington Resources, Inc.,
10,000 8.50%, 10/1/01 11,173,800
15,000 9.125%, 10/1/21 19,060,200
Coastal Corp.,
5,000 8.125%, 9/15/02 5,468,850
15,000 9.625%, 5/15/12 18,019,350
Columbia Gas System, Inc.,
1,731 6.39%, 11/28/00 1,757,363
1,730 6.61%, 11/28/02 1,761,330
</TABLE>
- - -------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Portfolio of Investments as of December 31, 1995
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- - ------------------------------------------------------------
Natural Gas (cont'd.)
Columbia Gas System, Inc.,
$ 1,730 6.80%, 11/28/05 $ 1,779,461
1,730 7.05%, 11/28/07 1,772,160
1,730 7.32%, 11/28/10 1,765,863
1,730 7.42%, 11/28/15 1,755,171
1,730 7.62%, 11/28/25 1,761,123
Oryx Energy Co.,
2,000 9.50%, 11/1/99 2,151,260
1,000 7.50%, 5/15/14 915,000
15,000 Williams Cos., Inc.,
8.875%, 9/15/12 17,502,750
---------------
108,843,681
---------------
Total bonds
(cost $136,534,522) 150,221,081
---------------
Total long-term investments
(cost $3,180,954,994) 3,989,525,491
SHORT-TERM INVESTMENT--1.8%
- - ------------------------------------------------------------
Repurchase Agreement
74,293 Joint Repurchase Agreement Account,
5.85%, 1/2/96
(cost $74,293,000; Note 5) 74,293,000
---------------
- - ------------------------------------------------------------
Total Investments--99.9%
(cost $3,255,247,994; Note 4) 4,063,818,491
Other assets in excess of
liabilities--0.1% 3,507,666
---------------
Net Assets--100% $ 4,067,326,157
---------------
---------------
</TABLE>
- - ---------------
(a) Non-income producing securities.
(b) Issuer in bankruptcy.
ADR--American Depository Receipt.
- - -------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
<C>
Assets
December 31, 1995
Investments, at value (cost
$3,255,247,994).............................................................
$ 4,063,818,491
Foreign currency, at value (cost
$532,102)..............................................................
531,233
Cash.........................................................................
........................... 109,023
Dividends and interest
receivable...................................................................
.... 13,231,641
Receivable for Fund shares
sold.........................................................................
2,176,870
Prepaid expenses and other
assets.......................................................................
85,603
-----------------
Total
assets.......................................................................
.................. 4,079,952,861
-----------------
Liabilities
Payable for Fund shares
reacquired......................................................................
7,606,719
Distribution fee
payable......................................................................
.......... 2,338,689
Management fee
payable......................................................................
............ 1,391,297
Accrued expenses and other
liabilities..................................................................
906,209
Withholding taxes
payable......................................................................
......... 383,790
-----------------
Total
liabilities..................................................................
.................. 12,626,704
-----------------
Net
Assets.......................................................................
....................... $ 4,067,326,157
-----------------
-----------------
Net assets were comprised of:
Common stock, at
par..........................................................................
....... $ 4,121,125
Paid-in capital in excess of
par.....................................................................
3,046,198,190
-----------------
3,050,319,315
Undistributed net investment income (includes equalization of
$193,553,721).......................... 194,184,073
Accumulated net realized gain on
investments.........................................................
14,253,475
Net unrealized appreciation on investments and foreign
currencies.................................... 808,569,294
-----------------
Net assets, December 31,
1995...........................................................................
$ 4,067,326,157
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($1,708,791,565 / 173,129,788 shares of common stock issued and
outstanding)...................... $ 9.87
Maximum sales charge (5.00% of offering
price).......................................................
.52
Maximum offering price to
public.....................................................................
$10.39
Class B:
Net asset value, offering price and redemption price per share
($2,355,079,466 / 238,632,583 shares of common stock issued and
outstanding)...................... $ 9.87
Class C:
Net asset value, offering price and redemption price per share
($3,455,126 / 350,099 shares of common stock issued and
outstanding).............................. $ 9.87
</TABLE>
- - -------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Statement of Operations
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1995
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $5,079,298)............... $ 135,739,282
Interest.............................. 20,165,682
-----------------
Total income....................... 155,904,964
-----------------
Expenses
Distribution fee--Class A............. 3,600,013
Distribution fee--Class B............. 24,499,634
Distribution fee--Class C............. 21,813
Management fee........................ 15,997,525
Transfer agent's fees and expenses.... 6,351,000
Reports to shareholders............... 1,100,000
Custodian's fees and expenses......... 625,000
Registration fees..................... 175,000
Insurance............................. 125,000
Legal fees............................ 70,000
Audit fee............................. 62,000
Directors' fees....................... 45,000
Miscellaneous......................... 22,787
-----------------
Total expenses..................... 52,694,772
-----------------
Net investment income.................... 103,210,192
-----------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Transactions
Net realized gain on:
Investment transactions............... 98,806,463
Foreign currency transactions......... 82,652
-----------------
98,889,115
-----------------
Net change in unrealized appreciation/depreciation on:
Investments........................... 673,309,709
Foreign currencies.................... (11,022)
-----------------
673,298,687
-----------------
Net gain on investments and foreign
currencies............................ 772,187,802
-----------------
Net Increase in Net Assets Resulting from
Operations............................... $ 875,397,994
-----------------
-----------------
</TABLE>
PRUDENTIAL UTILITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1995 1994
<S> <C> <C>
Operations
Net investment income....... $ 103,210,192 $ 118,842,157
Net realized gain on
investments.............. 98,889,115 138,119,307
Net change in unrealized
appreciation/depreciation
of investments........... 673,298,687 (647,224,068)
-------------- --------------
Net increase (decrease) in
net assets resulting from
operations............... 875,397,994 (390,262,604)
-------------- --------------
Net equalization debits........ (164,415,069) (57,041,187)
-------------- --------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (51,342,292) (9,948,533)
Class B.................. (55,339,423) (105,699,604)
Class C.................. (56,691) (7,937)
-------------- --------------
(106,738,406) (115,656,074)
-------------- --------------
Distributions from net
realized capital gains
Class A.................. (32,215,260) (10,711,271)
Class B.................. (44,539,060) (150,769,531)
Class C.................. (61,682) (22,563)
-------------- --------------
(76,816,002) (161,503,365)
-------------- --------------
Distributions in excess of
net realized gains
Class A.................. -- (501,648)
Class B.................. -- (7,061,091)
Class C.................. -- (1,057)
-------------- --------------
-- (7,563,796)
-------------- --------------
Fund share transactions (net of
share conversion) (Note 5)
Proceeds from shares sold... 280,270,137 467,562,860
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 158,587,981 237,969,009
Cost of shares reacquired... (680,035,423) (1,284,670,198)
-------------- --------------
Net decrease in net assets
from Fund share
transactions............. (241,177,305) (579,138,329)
-------------- --------------
Total increase (decrease)...... 286,251,212 (1,311,165,355)
Net Assets
Beginning of year.............. 3,781,074,945 5,092,240,300
-------------- --------------
End of year.................... $4,067,326,157 $3,781,074,945
-------------- --------------
-------------- --------------
</TABLE>
- - -------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
Prudential Utility Fund (the ``Fund'') is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
Its investment objective is to seek high current income and moderate capital
appreciation. The Fund seeks to achieve this objective by investing primarily
in
equity and debt securities of utility companies. Utility companies include
electric, gas, gas pipeline, telephone, telecommunications, water and cable
companies. The ability of issuers of certain debt securities held by the Fund
to
meet their obligations may be affected by economic developments in a specific
industry or region.
- - ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Investments traded on a national securities exchange are
valued at the last reported sales price on the primary exchange on which they
are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued based on
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.
In connection with repurchase agreements with U.S. financial institutions, it
is
the Fund's policy that its custodian or designated subcustodians, as the case
may be under triparty repurchase agreements, takes possession of the underlying
collateral securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
closing daily rate of exchange;
(ii) purchases and sales of investment securities, income and expenses--at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the year, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the year. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of portfolio securities sold during
the year.
Net realized gains on foreign currency transactions represent net foreign
exchange gains from sales and maturities of short-term securities, disposition
of foreign currency, gains or losses realized between the trade and settlement
dates of security transactions, and the difference between amounts of dividends,
interest and foreign withholding taxes recorded on the Fund's books and the US
dollar equivalent amounts actually received or paid. Net currency gains and
losses from valuing foreign currency denominated assets, except portfolio
securities, and liabilities at year end exchange rates are reflected as a
component of unrealized appreciation or depreciation on foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
and foreign currencies are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date and interest income is recorded on
the accrual basis. The Fund amortizes discounts on purchases of portfolio
securities as adjustments to interest income. Expenses are recorded on the
accrual basis which may require the use of certain estimates by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Dividends and Distributions: Dividends from net investment income are declared
and paid quarterly. The Fund will distribute at least annually any net capital
gains in excess of loss carryforwards. Dividends and distributions are recorded
on the ex-dividend date.
- - -------------------------------------------------------------------------------
8
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of shares
of common stock, equivalent on a per share basis to the amount of undistributed
net investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase undistributed net investment income by $82,652
and decrease accumulated net realized gain on investments by $82,652 for
realized foreign currency gains during the fiscal year ended December 31, 1995.
Net investment income, net realized gains and net assets were not affected by
this change.
- - ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
Pursuant to a subadvisory agreement between PMF and The Prudential Investment
Corporation (``PIC''), PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the cost of compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an annual
rate of .60% of the Fund's average daily net assets up to $250 million, .50% of
the next $500 million, .45% of the next $750 million, .40% of the next $500
million, .35% of the next $2 billion, .325% of the next $2 billion and .30% of
the average daily net assets of the Fund in excess of $6 billion.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Prudential Securities Incorporated (``PSI'') is
distributor of the Class B and Class C shares of the Fund. The Fund compensates
PMFD and PSI for distributing and servicing the Fund's Class A, Class B and
Class C shares, pursuant to plans of distribution (the ``Class A, B and C
Plans''), regardless of expenses actually incurred by them. The distribution
fees are accrued daily and payable monthly. Effective January 2, 1996, PSI
became the distributor of the Class A shares of the Fund and is serving the Fund
under the same terms and conditions as under the arrangement with PMFD.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
the year ended December 31, 1995 with respect to Class A shares, for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the year ended December
31, 1995.
PMFD has advised the Fund that it has received approximately $633,300 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1995. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI advised the Fund that for the year ended December 31, 1995, it received
approximately $6,658,500 in contingent deferred sales charges imposed upon
redemptions by certain Class B and Class C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- - ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended December 31,
1995, the Fund incurred fees of approximately $5,026,000 for the services of
PMFS. As of December 31, 1995, approximately $397,000 of such fees were due to
PMFS. Transfer agent fees and expenses
- - -------------------------------------------------------------------------------
9
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
in the Statement of Operations also include certain out-of-pocket expenses paid
to non-affiliates.
For the year ended December 31, 1995, PSI earned approximately $88,300 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended December 31, 1995, were $540,457,330 and $949,821,849,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1995 was
$3,260,660,291 and, accordingly, net unrealized appreciation for federal income
tax purposes was $803,158,200 (gross unrealized appreciation--$932,123,889;
gross unrealized depreciation--$128,965,689).
The Fund elected to treat approximately $117,800 of net currency losses incurred
during the two month period ended December 31, 1995 as having occurred in the
following fiscal year. The Fund also elected to treat approximately $6,919,000
of net capital losses and approximately $11,800 of net currency losses incurred
during the two month period ended December 31, 1994 as having been incurred in
the current fiscal year.
- - ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of December 31, 1995, the
Fund had a 6.4% undivided interest in the joint account. The undivided interest
for the Fund represents $74,293,000 in the principal amount. As of such date,
each repurchase agreement in the joint account and the collateral therefor were
as follows:
Bear, Stearns & Co., Inc., 5.80%, in the principal amount of $262,000,000,
repurchase price $262,168,844, due 1/2/96. The value of the collateral including
accrued interest was $267,947,172.
BT Securities Corp., 5.75%, in the principal amount of $61,765,000, repurchase
price $61,804,461, due 1/2/96. The value of the collateral including accrued
interest was $63,059,883.
Goldman, Sachs & Co., 5.90%, in the principal amount of $365,000,000, repurchase
price $365,239,278, due 1/2/96. The value of the collateral including accrued
interest was $372,300,053.
Morgan Stanley & Co., Inc., 5.89%, in the principal amount of $103,000,000,
repurchase price $103,067,408, due 1/2/96. The value of the collateral including
accrued interest was $105,192,608.
Smith Barney, Inc., 5.83%, in the principal amount of $365,000,000, repurchase
price $365,236,439, due 1/2/96. The value of the collateral including accrued
interest was $372,300,416.
- - ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase. A special exchange privilege is also available for shareholders who
qualified to purchase Class A shares at net asset value.
There are 2 billion shares of $.01 par value per share common stock authorized
which consists of 566,666,666 shares of Class A common stock, 866,666,667 shares
of Class B common stock and 566,666,667 shares of Class C common stock.
Transactions in shares of common stock for the fiscal years ended December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- - -------------------------------- ------------ ---------------
<S> <C> <C>
Year ended December 31, 1995:
Shares sold..................... 11,312,376 $ 101,904,762
Shares issued in reinvestment of
dividends and distributions... 8,160,648 75,788,292
Shares reacquired............... (35,079,569) (318,002,985)
------------ ---------------
Net decrease in shares
outstanding before
conversion.................... (15,606,545) (140,309,931)
Shares issued upon conversion
from Class B.................. 158,049,642 1,361,629,436
------------ ---------------
Net increase in shares
outstanding................... 142,443,097 $ 1,221,319,505
------------ ---------------
------------ ---------------
Year ended December 31, 1994:
Shares sold..................... 9,835,226 $ 90,667,332
Shares issued in reinvestment of
dividends and distributions... 2,285,997 19,666,231
Shares reacquired............... (16,079,665) (148,287,334)
------------ ---------------
Net decrease in shares
outstanding................... (3,958,442) $ (37,953,771)
------------ ---------------
------------ ---------------
</TABLE>
- - -------------------------------------------------------------------------------
10
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- - -------------------------------- ------------ ---------------
<S> <C> <C>
Year ended December 31, 1995:
Shares sold..................... 21,935,982 $ 175,662,021
Shares issued in reinvestment of
dividends and distributions... 9,776,000 82,690,917
Shares reacquired............... (61,783,220) (361,503,031)
------------ ---------------
Net decrease in shares
outstanding before
conversion.................... (30,071,238) (103,150,093)
Shares reacquired upon
conversion into Class A....... (158,409,384) (1,361,629,436)
------------ ---------------
Net decrease in shares
outstanding................... (188,480,622) $(1,464,779,529)
------------ ---------------
------------ ---------------
Year ended December 31, 1994:
Shares sold..................... 44,735,679 $ 376,053,154
Shares issued in reinvestment of
dividends and distributions... 28,031,504 218,274,190
Shares reacquired............... (136,533,323) (1,136,361,083)
------------ ---------------
Net decrease in shares
outstanding................... (63,766,140) $ (542,033,739)
------------ ---------------
------------ ---------------
Class C
- - --------------------------------
Year ended December 31, 1995:
Shares sold..................... 300,880 $ 2,703,354
Shares issued in reinvestment of
dividends and distributions... 11,542 108,772
Shares reacquired............... (57,613) (529,407)
------------ ---------------
Net increase in shares
outstanding................... 254,809 $ 2,282,719
------------ ---------------
------------ ---------------
August 1, 1994* through
December 31, 1994:
Shares sold..................... 94,343 $ 842,374
Shares issued in reinvestment of
dividends and distributions... 3,437 28,588
Shares reacquired............... (2,490) (21,781)
------------ ---------------
Net increase in shares
outstanding................... 95,290 $ 849,181
------------ ---------------
------------ ---------------
</TABLE>
- - ---------------
* Commencement of offering of Class C shares.
- - -------------------------------------------------------------------------------
11
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- - --------------------------------------------------
Year Ended
December 31,
- - --------------------------------------------------
1995 1994 1993
1992 1991
------ ------ ------
------ ------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 8.27 $ 9.72 $ 8.97
$ 8.72 $ 7.63
------ ------ ------
------ ------
Income from investment operations
Net investment income......................... .30 .31 .33
.38 .39
Net realized and unrealized gains (losses) on
investment and foreign currency
transactions............................... 1.79 (1.06) 1.12
.45 1.10
------ ------ ------
------ ------
Total from investment operations........... 2.09 (.75) 1.45
.83 1.49
------ ------ ------
------ ------
Less distributions
Dividends from net investment income.......... (.30) (.32) (.29)
(.34) (.39)
Distributions from net realized gains......... (.19) (.36) (.41)
(.24) (.01)
Distributions in excess of net realized
gains...................................... -- (.02) --
-- --
------ ------ ------
------ ------
Total distributions........................ (.49) (.70) (.70)
(.58) (.40)
------ ------ ------
------ ------
Net asset value, end of year.................. $ 9.87 $ 8.27 $ 9.72
$ 8.97 $ 8.72
------ ------ ------
------ ------
------ ------ ------
------ ------
TOTAL RETURN(a)............................... 25.74% (7.89)% 16.28%
9.88% 19.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000,000)............. $1,709 $ 254 $ 337
$ 201 $ 111
Average net assets (000,000).................. $1,440 $ 294 $ 287
$ 149 $ 85
Ratios to average net assets:
Expenses, including distribution fees...... .88% .88% .80%
.81% .87%
Expenses, excluding distribution fees...... .63% .63% .60%
.61% .67%
Net investment income...................... 3.12% 3.37% 3.16%
4.14% 4.69%
For Class A, B and C shares:
Portfolio turnover rate.................... 14% 15% 24%
24% 38%
Average commission rate paid per share..... $.0302 N/A N/A
N/A N/A
</TABLE>
- - ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
- - -------------------------------------------------------------------------------
12 See Notes to Financial Statements.
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
Class C
- - -------------------------------------------------- ------------
Year Ended
December 31, Year Ended
- - -------------------------------------------------- December 31,
1995 1994 1993
1992 1991 1995
<S> <C> <C> <C>
<C> <C> <C>
------ ------ ------
------ ------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 8.26 $ 9.69 $ 8.96
$ 8.71 $7.638 $ 8.26
------ ------ ------
------ ------ ------------
Income from investment operations
Net investment income......................... .22 .24 .24
.31 .32 .22
Net realized and unrealized gains (losses) on
investment and foreign currency
transactions............................... 1.80 (1.05) 1.12
.46 1.10 1.80
------ ------ ------
------ ------ ------------
Total from investment operations........... 2.02 (.81) 1.36
.77 1.42 2.02
------ ------ ------
------ ------ ------------
Less distributions
Dividends from net investment income.......... (.22) (.24) (.22)
(.28) (.33) (.22)
Distributions from net realized gains......... (.19) (.36) (.41)
(.24) (.01) (.19)
Distributions in excess of net realized
gains...................................... -- (.02) --
-- -- --
------ ------ ------
------ ------ ------------
Total distributions........................ (.41) (.62) (.63)
(.52) (.34) (.41)
------ ------ ------
------ ------ ------------
Net asset value, end of period................ $ 9.87 $ 8.26 $ 9.69
$ 8.96 $ 8.71 $ 9.87
------ ------ ------
------ ------ ------------
------ ------ ------
------ ------ ------------
TOTAL RETURN(a)............................... 24.80% (8.51)% 15.27%
9.02% 19.01% 24.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)........... $2,355 $3,526 $4,756
$3,438 $2,818 $ 3,455(d)
Average net assets (000,000).................. $2,450 $4,152 $4,308
$3,027 $2,529 $ 2,181(d)
Ratios to average net assets:
Expenses, including distribution fees...... 1.63% 1.63% 1.60%
1.61% 1.67% 1.63%
Expenses, excluding distribution fees...... .63% .63% .60%
.61% .67% .63%
Net investment income...................... 2.37% 2.62% 2.36%
3.34% 3.89% 2.37%
<CAPTION>
August 1,
Through
December 31,
1994
<S> <C>
------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 9.30
------------
Income from investment operations
Net investment income......................... .11
Net realized and unrealized gains (losses) on
investment and foreign currency
transactions............................... (.69)
------------
Total from investment operations........... (.58)
------------
Less distributions
Dividends from net investment income.......... (.13)
Distributions from net realized gains......... (.31)
Distributions in excess of net realized
gains...................................... (.02)
------------
Total distributions........................ (.46)
------------
Net asset value, end of period................ $ 8.26
------------
------------
TOTAL RETURN(a)............................... (6.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)........... $ 787(d)
Average net assets (000,000).................. $ 433(d)
Ratios to average net assets:
Expenses, including distribution fees...... 1.70%(b)
Expenses, excluding distribution fees...... .70%(b)
Net investment income...................... 2.65%(b)
</TABLE>
- - ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than one full year are not
annualized.
(b) Annualized.
(c) Commencement of offering of Class C shares.
(d) Figures are rounded to the nearest thousand.
- - -------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
<PAGE>
Report of Independent Accountants PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Utility Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Utility Fund (the
``Fund'') at December 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as ``financial
statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 28, 1996
Tax Information PRUDENTIAL UTILITY FUND
- - -------------------------------------------------------------------------------
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1995) as to the federal tax status of
dividends paid by the Fund during its fiscal year ended December 31, 1995.
During 1995, the Fund paid dividends of $.489 per Class A share, $.409 per Class
B share and $.409 per Class C share. Of these amounts, $.167 per Class A, B and
C shares represent distributions from long-term capital gains and is taxable as
such. The remaining $.322 per Class A share, $.242 per Class B share and $.242
per Class C share represent dividends from ordinary income (net investment
income and short-term capital gains). Further, we wish to advise you that 100%
of the ordinary income dividends paid in 1995 qualified for the corporate
dividends received deduction available to corporate taxpayers.
For the purpose of preparing your annual federal income tax return, however, you
should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute 1099-DIV.
- - -------------------------------------------------------------------------------
14
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds for shares
in most other Prudential Mutual Funds, without charges. This may be most
helpful if your investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions
automatically -- without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on
your investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an IRA. If you
are married, you and your spouse (if not working outside the home) can
contribute up to $2,250 a year. (Withdrawals are taxed as ordinary
income and may be subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.
You can take your pension with you. Use a rollover IRA to manage your
company-sponsored retirement plan while retaining the special tax-deferred
advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's education or
other needs.
Take Income.
Would you like to receive monthly or quarterly checks in any amount from
your fund account? Just let us know. We'll take care of it. Of course,
there are minimum amounts. And shares redeemed may be subject to tax,
and Class B and C shares may be subject to contingent deferred sales
charges. We'll gladly answer your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive
account activity statements every quarter. But you also receive annual
and semi-annual fund reports, as well as other important updates on
events that affect your investments, including tax information.
This material is only authorized for distribution when preceded or
accompanied by a current prospectus. Read the prospectus carefully
before you invest or send money.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
When you invest through Prudential Mutual Funds, you receive financial
advice through a Prudential Securities financial advisor or
Prudential/Pruco Securities registered representative. Your
advisor or representative can provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you
match the reward you seek with the risk you can tolerate. And risk
can be difficult to gauge --sometimes even the simplest investments
bear surprising risks. The educated investor knows hat markets seldom
move in just one direction -- there are times when a market sector or
asset class will lose value or provide little in the way of total
return. Managing your own expectations is easier with help from someone
who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through
the numerous mutual funds available to find the ones that fit your own
individual investment profile and risk tolerance. While the newspapers
and popular magazines are full of advice about investing, they are aimed
at generic groups of people or representative individuals, not at you
personally. Your financial advisor or registered representative will
review your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in your current
portfolio and your risk tolerance -- not just based on the current
investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are
among the most common investor mistakes. But sometimes it's difficult
to hold on to an investment when it's losing value every month. Your
financial advisor or registered representative can answer questions
when you're confused or worried about your investment, and remind you
that you're investing for the long haul.
<PAGE>
- - --Prudential Utility Fund, Inc. ==S&P 500 Index
The Prudential Utility Fund and the S&P 500 Index:
Comparing a $10,000 Investment.
Average Annual
Total Returns
- - -------------------
With Sales Load
9.2% Since Inception
11.0% for 5 Years
19.5% for 1 Year
Class A
(GRAPH)
Without Sales Load
10.1% Since Inception
12.2% for 5 Years
25.7% for 1 Year
Average Annual
Total Returns
- - --------------------
With Sales Load
16.1% Since Inception
12.5% for 10 Years
11.2% for 5 Years
19.8% for 1 Year
Class B
(GRAPH)
Without Sales Load
16.1% Since Inception
12.5% for 10 Years
11.3% for 5 Years
24.8% for 1 Year
Average Annual
Total Returns
- - -----------------
With Sales Load
11.8% Since Inception
23.8% for 1 Year
Class C
(GRAPH)
Without Sales Load
11.8% Since Inception
24.8% for 1 Year
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed,
will be worth more or less than their original cost. The charts on the
right are designed to give you an idea how much the Fund's returns can
fluctuate from year to year by measuring the best and worst calendar
years in terms of total annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Utility Fund (Class A, Class
B and Class C) with a similar investment in the S&P 500 Index by portraying
the initial account values at the commencement of operations of Class A and
C shares and for 10 years for class B shares, and subsequent account values
at the end of this reporting period (December 31), as measured on a
quarterly basis, beginning in 1990 for Class A shares, in 1985 for Class B
shares and in 1994 for Class C shares. For purposes of the graphs, and
unless otherwise indicated, in the accompanying tables it has been assumed
(a) that the maximum applicable front-end sales charge was deducted from
the initial $10,000 investment in Class A shares; (b) the maximum
applicable contingent deferred sales charge was deducted from the value
of the investment in Class B and Class C shares, assuming full redemption
on December 31, 1995; (c) all recurring fees (including management fees)
were deducted; and (d) all dividends and distributions were reinvested.
Class B shares will automatically convert to Class A shares, on a quarterly
basis, beginning approximately seven years after purchase. This conversion
feature is not reflected in the graph.
The S&P 500 Index is a capital-weighted index, representing the aggregate
market value of the common equity of 500 stocks primarily traded on the
New York Stock Exchange. The S&P 500 is an unmanaged index and includes
the reinvestment of all dividends, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in
the Fund. The securities in the Index may differ substantially from the
securities in the Fund. The S&P 500 Index is not the only index
that may be used to characterize performance of stock funds and other
indexes may portray different comparative performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
(LOGO)
Directors
Thomas R. Anderson
Robert R. Fortune
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas A. Owens, Jr.
Richard A. Redeker
Merle T. Welshans
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E. H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10044
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
743911208 MF105E
743911109 Cat. #4444523
743911307
