(ICON)
Prudential
Utility
Fund, Inc.
SEMI
ANNUAL
REPORT
June 30, 1996
(LOGO)
<PAGE>
Prudential Utility Fund, Inc.
Performance At A Glance.
We are pleased to report that the Prudential Utility Fund performed
significantly better than the average utility mutual fund during the last six
months, as measured by Lipper Analytical Services. We believe our strong
performance resulted from holding more assets in foreign utilities and natural
gas stocks than the typical utility fund.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of
6/30/96
Six One Five Ten Since
Months Year Years Years
Inception2
<S> <C> <C> <C> <C> <C>
Class A 7.9% 21.9% 81.8% N/A
91.3%
Class B 7.5 20.9 75.0 179.9%
822.5
Class C 7.5 20.9 N/A N/A
25.7
Class Z N/A N/A N/A N/A
6.1
Lipper Utility Fund Avg3 3.5 18.4 76.8 150.5
541.7
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 6/30/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 15.8% 11.6% N/A 9.7%
Class B 15.9 11.7 10.9% 16.1
Class C 19.9 N/A N/A 12.8
Class Z N/A N/A N/A N/A
</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.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. 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 declining
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. Class Z shares are not subject to a
sales charge or a distribution fee. Since Class Z shares have been in existence
less than a year, no average annual total returns are shown.
2Inception dates: 1/22/90 Class A; 8/10/81 Class B; 8/1/94 Class C; 3/1/96
Class Z.
3Lipper average returns are for 87 funds for six months, 85 funds for one year,
21 funds for five years, eight funds for 10 years and four funds since
inception of the Class B shares on 8/10/81.
How Investments Compared.
(As of 6/30/96)
(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 returns 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 included historical
20-year average annual returns. These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors receive higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
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.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
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
(PHOTO)
Portfolio
Manager's Report
The Prudential Utility Fund invests in stocks of utility companies, primarily
electric, natural gas, gas pipeline, telephone and telecommunications, water,
cable, airport, seaport, and toll road companies, both in the U.S. and abroad.
Utility investments can be affected by government regulations, the price of
fuel and environmental factors. There can be no assurance that the Fund's
investment objective will be achieved.
We're A Little Different.
The Prudential Utility Fund is a bit different from other utility funds. We
look for high current income and moderate capital appreciation. We may view
the utility industry more broadly than other utility funds, taking advantage
of opportunities to diversify. As of June 30, for example, we focused on
natural gas and foreign utilities, which performed better than traditional
electric utilities.
Strategy Session.
Our strategy to focus on foreign and natural gas stocks hasn't changed much
from last year. The difference is that it is starting to pay off.
Going Global.
While U.S. stocks in general surged during the past 30 months, U.S. utility
stocks (electricity companies, particularly) struggled to keep up. So late in
1995, we started to further increase our holdings in foreign utilities, which
were about 25% of total net assets as of June 30, 1996.
That strategy has proved to be a winning one in the first six months of this
year as our foreign utility stocks performed much better than our U.S.
holdings. That's because U.S. interest rates rose rapidly this year, making
the income of bonds more attractive than the dividends of electric utility
stocks.
Growth In Gas.
We've also maintained our focus on natural gas stocks. You'll notice that all
of our top equity holdings are gas pipeline companies: Sonat, PanEnergy,
Coastal Corp., Williams Companies and Columbia Gas System. We like these
companies because we expect them to be very busy for the remainder of 1996:
their customers have postponed purchases, hoping that gas prices will fall. We
suspect they won't. In fact, we expect supplies this winter will be even lower
than last winter, when the shortage was so severe that gas prices nearly
doubled year to year. In addition, our natural gas holdings continued to rise
after a truly outstanding 1995.
While our natural gas and foreign investment strategies didn't change much, we
did make one significant change in the Fund -- we sold a number of our low- or
no-yield stocks which had appreciated as much as we thought they would. We used
the proceeds to purchase U.S. electric utility stocks, which were priced
attractively because of rising interest rates. (When interest rates rise,
electric utility stock prices tend to react like bonds and decline.) We also
bought higher-yielding foreign stocks.
Electrics Dominate.
Expressed as a percentage of
total net assets as of 6/30/96.
(GRAPH)
<PAGE>
What Went Well.
Gain in Spain.
We were quite pleased with the way our foreign holdings advanced so far this
year, particularly in Spain, where strong economic growth, a favorable
regulatory climate and declining interest rates are boosting these stocks. Our
best performing stock was Telefonica de Espana, the Spanish telephone company,
which rose more than 30% to date this year. Other strong stocks in Spain were
two electric utilities: Empresa Nacional de Electricidad and Iberdrola.
Natural Gas Grows.
Last year, natural gas pipeline distribution companies powered your Fund's
gains. Some of these stocks rose as much as 85%. That kind of growth, clearly,
is difficult to sustain. Gains this year to date have not been quite so lofty,
but still were very respectable. High natural gas prices last year encouraged
many utilities to postpone purchases in hopes that prices would fall. In fact,
this winter we expect that short-term gas supply in the nation's storage
system, which is used to meet peak winter heating demand, will be lower than
last year. We expect prices will continue to rise, so we'll hold on to these
stocks.
No Yield? Sell.
We sold some of our lower-yielding or non-yielding stocks that had reached our
price targets and used the proceeds to buy select U.S. electric stocks and
higher-yielding foreign stocks. We added Bell Canada (BCE), the Canadian
telephone company, plus some convertible securities of the Argentinean
telephone company.
And Not So Well.
Electrics: Too Early.
We wish we had waited a little longer to buy electric utility stocks, instead
of purchasing some of them early this year. Interest rates rose steeply this
spring, hurting electric utility stocks by forcing their prices down to make
their yields more competitive with bonds. By June, it appeared that interest
rates would continue to surge higher. The yield of the 30-year U.S. Treasury
rose a full percentage point higher than on December 31, 1995 -- and electric
utility stocks as a group tumbled. If we had waited, we could have bought these
stocks for less.
Five Largest Equity Holdings.
4.7% Sonat
Natural Gas
3.9 PanEnergy
Natural Gas
3.4 Coastal Corp.
Natural Gas
3.3 Williams Companies
Natural Gas
3.2 Columbia Gas System
Natural Gas
Expressed as a percentage of total net assets as of 6/30/96.
Looking Ahead.
Although our very large position in natural gas has performed well, we think
utility stocks as a broad group are long overdue to catch up with the stock
market's performance. The higher dividends of these stocks should make them
attractive if the broader stock market should tumble from today's lofty levels.
Electric utilities are inexpensive in comparison with other stocks.
We are particularly optimistic about the two major areas that have helped us
perform better than the average utility fund: natural gas and select foreign
utilities. Both have provided outstanding performance over the past six months.
- -------------------------------------------------------------------------------
1
<PAGE>
President's Letter August 1, 1996
(PHOTO)
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted extraordinary returns.
Investors celebrated this performance by putting record amounts of new money
into mutual funds in the first few months of 1996. According to figures
released by the Investment Company Institute, a mutual fund industry trade
group, new investments in mutual funds reached an all-time monthly high of $33
billion in January of 1996. An additional $66 billion was invested in the
following three months, although this rapid inflow subsided somewhat in late
spring.
While we are pleased that mutual funds are attracting new investors, we're
concerned that some of them may be "buying last year's returns." Few expect
1995's virtual non-stop returns from the stock and bond markets. In fact,
1996's markets have been volatile so far (stock and bond prices go down just
as they go up). There's no better time than now to be talking with your
Financial Advisor or Registered Representative. She or he can help you
determine reasonable expectations about both the potential performance and
risks associated with your investments.
Board of Directors Election.
In addition to this report, we are including a notice about a special
shareholder meeting to elect new Prudential mutual fund boards of directors.
Your Board of Directors has approved a proposal to place a common board of
experienced directors across many of Prudential's mutual funds to improve
business efficiency. The enclosed material contains more complete information
about this proposal.
Changes at Prudential.
Finally, there have been some important changes recently at Prudential that
were made with you in mind. Prudential Mutual Funds has moved under the
umbrella of Prudential's newly created "Money Management Group." This group
manages and administers nearly $190 billion in client assets and provides
mutual funds, annuities, defined benefit and defined contribution plans to our
individual and institutional investors. We plan to improve the range and
quality of investment products and services that we can provide you by better
leveraging Prudential's strengths. There will, however, be no change in the
service you receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- -------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments as of
June 30, 1996 (Unaudited) PRUDENTIAL UTILITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--92.0%
COMMON STOCKS--92.7%
- ------------------------------------------------------------
Communications--17.3%
1,152,200 AT&T Corp. $ 71,436,400
1,169,800 BCE Inc. (Canada) 46,207,100
330,000 Frontier Corporation 10,106,250
3,060,900 MCI Communications Corp. 78,435,562
405,000 Millicom International Cellular S.A.
(Luxembourg)(a) 19,288,125
398,000 Philippine Long Distance Telephone
Co. (ADR) (The Philippines) 21,691,000
19,500,000 Societa Finanziaria Telefonica,
S.P.A. (Italy) 66,005,864
2,019,200 Southern New England
Telecommunications Corp. 84,806,400
1,000,000 Sprint Corp. 42,000,000
1,991,700 Tele Danmark (ADR) (Denmark) 50,539,388
573,400 Telebras (ADR) (Brazil) 39,922,975
1,974,000 Telefonica de Espana, S.A. (ADR)
(Spain) 108,816,750
1,561,500 Telefonos de Mexico, S.A. (ADR)
(Mexico) 52,310,250
---------------
691,566,064
- ------------------------------------------------------------
Electrical Power--37.7%
1,558,927 AES Corp.(a) 44,039,688
99,800 Allegheny Power Systems, Inc. 3,081,325
1,045,400 Boston Edison Co. 26,657,700
981,300 Central Louisiana Electric
Company, Inc. 26,127,113
1,179,500 Central Maine Power Co. 17,102,750
3,332,685 CINergy Corporation 106,645,920
2,497,100 CMS Energy Corporation 77,097,962
948,202 Companhia Energetica de Minas
Gerais (ADR) (Brazil) 25,245,878
17,779,000 Consolidated Electric Power
(Hong Kong) 29,399,305
803,100 Eastern Utilities Associates 15,760,838
2,415,000 Edison International 42,564,375
83,540 El Paso Electric Co.(a) 501,240
1,147,700 Empresa Nacional de Electricidad
S.A. (ADR) (Spain) $ 71,874,712
349,001 Energie - Versorgung
Niederoesterreich AG (Austria) 48,167,248
2,420,702 Entergy Corporation 68,687,419
8,700,000 Iberdrola (Spain) 89,256,875
3,000,000 Illinova Corp. 86,250,000
2,050,600 KENETECH Corp.(a) 1,089,381
222,800 LG & E Energy Corp. 5,096,550
1,354,200 MidAmerican Energy Co. 23,359,950
7,250,000 National Power PLC
(United Kingdom) 58,476,811
2,089,400 New York State Electric & Gas
Corp. 50,929,125
967,000 NIPSCO Industries, Inc. 38,921,750
2,278,500 Northeast Utilities Co. 30,474,938
464,260 Oester Elektrizita (Austria) 35,500,835
2,000,000 Ohio Edison Co. 43,750,000
900,000 Pacific Gas & Electric Co. 20,925,000
2,578,600 PECO Energy Co. 67,043,600
2,303,400 Pinnacle West Capital Corp. 69,965,775
906,800 Public Service Company of Colorado 33,324,900
2,057,000 Public Service Company of
New Mexico 42,168,500
1,670,800 Rochester Gas & Electric Corp. 35,922,200
1,526,100 Texas Utilities Co. 65,240,775
2,396,800 The Southern Company 59,021,200
1,490,740 Tuscon Electric Power Co.(a) 20,124,990
1,180,500 Unicom Corp. 32,906,438
---------------
1,512,703,066
- ------------------------------------------------------------
Natural Gas--36.8%
283,650 Bay State Gas Co. 7,906,744
2,231,600 British Gas PLC (ADR)
(United Kingdom) 62,484,800
450,000 Burlington Resources, Inc. 19,350,000
3,226,275 Coastal Corp. 134,696,981
2,500,000 Columbia Gas System, Inc. 130,312,500
407,200 Consolidated Natural Gas Co. 21,276,200
117,600 Eastern Enterprises, Inc. 3,910,200
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1996 (Unaudited) PRUDENTIAL UTILITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Natural Gas (cont'd.)
1,299,100 El Paso Natural Gas Co. $ 50,015,350
500,000 Energen Corp. 11,062,500
417,900 Enron Corp. 17,081,663
3,272,300 ENSERCH Corp. 71,172,525
1,500,000 Equitable Resources, Inc. 42,375,000
690,300 KN Energy, Inc. 23,125,050
703,600 MCN Corporation 17,150,250
810,600 NICOR Inc. 23,000,775
3,148,000 NorAm Energy Corp. 34,234,500
700,000 Oryx Energy Co.(a) 11,375,000
3,544,300 Pacific Enterprises 104,999,887
4,722,800 PanEnergy Corp. 155,262,050
117,600 Providence Energy Corp. 2,028,600
1,880,400 Questar Corp. 63,933,600
4,177,100 Sonat, Inc. 187,969,500
205,400 Southwest Gas Corporation 3,286,400
857,700 TPC Corp.(a) 6,218,325
7,100,000 TransCanada Pipelines, Ltd.
(Canada) 105,430,080
2,200,000 Westcoast Energy, Inc. (Canada) 33,000,000
2,642,341 Williams Cos., Inc. 130,795,879
161,150 Yankee Energy System, Inc. 3,505,012
---------------
1,476,959,371
- ------------------------------------------------------------
Realty Investment Trust--0.8%
31,200 Charles E. Smith Residential
Realty, Inc. 748,800
969,900 Equity Residential Property Trust 31,885,463
---------------
32,634,263
- ------------------------------------------------------------
Transportation--0.1%
70,000 Flughafen Wien AG (Austria) 4,782,207
---------------
Total common stocks
(cost $2,825,767,668) 3,718,644,971
---------------
PREFERRED STOCKS--1.0%
- ------------------------------------------------------------
Communications--0.8%
200,000 Compania de Inversiones,
Convertible,
7.00% (Argentina) 11,600,000
475,000 Nortel Inversora S.A.,
Convertible, 10.00% (Argentina) 21,850,000
---------------
33,450,000
Electrical Power
440,000 KENETECH Corp., Convertible, $2.18 $ 426,250
- ------------------------------------------------------------
Natural Gas--0.2%
359,100 Enron Corp., 6.25% 9,291,712
---------------
Total preferred stocks
(cost $48,473,975) 43,167,962
---------------
Principal
Amount
(000)
BONDS--3.3%
- ------------------------------------------------------------
Electrical Power--0.7%
$ 3,055 Arkansas Power & Light Co.,
10.00%, 2/1/20 3,277,496
10,000 Cleveland Electric Illumination
Co.,
9.375%, 3/1/17 9,249,200
10,000 Niagara Mohawk Power Corp.,
9.50%, 3/1/21 9,236,200
5,000 Texas Utilities Co.,
9.75%, 5/1/21 5,553,000
---------------
27,315,896
- ------------------------------------------------------------
Natural Gas--2.6%
20,000 Arkla, Inc.,
10.00%, 11/15/19 21,650,000
Burlington Resources, Inc.,
10,000 8.50%, 10/1/01 10,598,400
15,000 9.125%, 10/1/21 17,134,800
Coastal Corp.,
5,000 8.125%, 9/15/02 5,212,950
15,000 9.625%, 5/15/12 17,087,850
Columbia Gas System, Inc.,
1,731 6.39%, 11/28/00 1,695,861
1,730 6.61%, 11/28/02 1,685,868
1,730 6.80%, 11/28/05 1,655,004
1,730 7.05%, 11/28/07 1,658,361
1,730 7.32%, 11/28/10 1,651,838
1,730 7.42%, 11/28/15 1,612,741
1,730 7.62%, 11/28/25 1,626,494
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Portfolio of Investments as of June 30, 1996 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Natural Gas (cont'd.)
Oryx Energy Co.,
$ 2,000 9.50%, 11/1/99 $ 2,104,580
1,000 7.50%, 5/15/14 885,000
15,000 Williams Cos., Inc.,
8.875%, 9/15/12 16,486,350
---------------
102,746,097
---------------
Total bonds
(cost $124,018,213) 130,061,993
---------------
Total long-term investments
(cost $2,998,259,856) 3,891,874,926
---------------
SHORT-TERM INVESTMENT--1.1%
- ------------------------------------------------------------
Repurchase Agreement
46,077 Joint Repurchase Agreement
Account,
5.46%, 7/1/96
(cost $46,077,000; Note 5) 46,077,000
---------------
- ------------------------------------------------------------
Total Investments--98.1%
(cost $3,044,336,856; Note 4) 3,937,951,926
Other assets in excess of
liabilities--1.9% 75,237,688
---------------
Net Assets--100% $ 4,013,189,614
---------------
---------------
</TABLE>
- ---------------
(a) Non-income producing securities.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
<C>
Assets
June 30, 1996
Investments, at value (cost
$3,044,336,856).................................................................
$3,937,951,926
Foreign currency, at value (cost
$13,288,358)...............................................................
13,372,675
Cash.........................................................................
............................... 199,569
Receivable for investments
sold.........................................................................
.... 51,684,540
Dividends and interest
receivable...................................................................
........ 18,226,468
Receivable for Fund shares
sold.........................................................................
.... 4,882,592
Deferred expenses and other
assets..........................................................................
138,613
--------------
Total
assets.......................................................................
...................... 4,026,456,383
--------------
Liabilities
Payable for Fund shares
reacquired...................................................................
....... 6,297,446
Distribution fee
payable......................................................................
.............. 2,129,735
Payable for investments
purchased....................................................................
....... 1,322,150
Management fee
payable......................................................................
................ 1,322,111
Accrued expenses and other
liabilities..................................................................
.... 1,121,380
Foreign withholding taxes
payable......................................................................
..... 1,073,947
--------------
Total
liabilities..................................................................
...................... 13,266,769
--------------
Net
Assets.......................................................................
........................... $4,013,189,614
--------------
--------------
Net assets were comprised of:
Common stock, at
par..........................................................................
........... $ 3,843,655
Paid-in capital in excess of
par.........................................................................
2,960,852,267
--------------
2,964,695,922
Undistributed net investment
income......................................................................
7,618,744
Accumulated net realized gain on
investments.............................................................
147,231,977
Net unrealized appreciation on investments and foreign
currencies........................................ 893,642,971
--------------
Net assets, June 30,
1996.........................................................................
.......... $4,013,189,614
--------------
--------------
Class A:
Net asset value and redemption price per share
($1,833,034,294 / 175,570,941 shares of common stock issued and
outstanding).......................... $10.44
Maximum sales charge (5.00% of offering
price)...........................................................
.55
--------------
Maximum offering price to
public.........................................................................
$10.99
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($2,144,204,999 / 205,351,326 shares of common stock issued and
outstanding).......................... $10.44
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($4,442,003 / 425,412 shares of common stock issued and
outstanding).................................. $10.44
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($31,508,318 / 3,017,810 shares of common stock issued and
outstanding)............................... $10.44
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income June 30, 1996
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $3,531,269).......................... $ 75,364,411
Interest................................... 8,451,751
-------------
Total income............................ 83,816,162
-------------
Expenses
Distribution fee--Class A.................. 2,122,973
Distribution fee--Class B.................. 11,331,891
Distribution fee--Class C.................. 20,521
Management fee............................. 8,161,817
Transfer agent's fees and expenses......... 2,884,000
Reports to shareholders.................... 691,000
Custodian's fees and expenses.............. 283,000
Registration fees.......................... 75,000
Insurance.................................. 43,000
Legal fees................................. 35,000
Audit fee.................................. 31,000
Directors' fees............................ 23,000
Miscellaneous.............................. 14,205
-------------
Total expenses.......................... 25,716,407
-------------
Net investment income......................... 58,099,755
-------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions.................... 152,520,639
Foreign currency transactions.............. (257,316 )
-------------
152,263,323
-------------
Net change in unrealized appreciation on:
Investments................................ 85,044,573
Foreign currencies......................... 29,104
-------------
85,073,677
-------------
Net gain on investments and foreign
currencies................................. 237,337,000
-------------
Net Increase in Net Assets Resulting
from Operations............................... $295,436,755
-------------
-------------
</TABLE>
PRUDENTIAL UTILITY FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) June 30, December 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income....... $ 58,099,755 $ 103,210,192
Net realized gain on
investments.............. 152,263,323 98,889,115
Net change in unrealized
appreciation of
investments.............. 85,073,677 673,298,687
-------------- --------------
Net increase in net assets
resulting from
operations............... 295,436,755 875,397,994
-------------- --------------
Net equalization debits........ -- (164,415,069)
-------------- --------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (26,215,130) (51,342,292)
Class B.................. (24,080,474) (55,339,423)
Class C.................. (47,560) (56,691)
Class Z.................. (510,882) --
-------------- --------------
(50,854,047) (106,738,406)
-------------- --------------
Distributions from net
realized capital gains
Class A.................. (8,325,945) (32,215,260)
Class B.................. (11,027,642) (44,539,060)
Class C.................. (20,805) (61,682)
Class Z.................. (167,745) --
-------------- --------------
(19,542,137) (76,816,002)
-------------- --------------
Fund share transactions (net of
share conversion) (Note 5)
Proceeds from shares sold... 168,174,915 280,270,137
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 63,911,225 158,587,981
Cost of shares reacquired... (511,263,254) (680,035,423)
-------------- --------------
Net decrease in net assets
from Fund share
transactions............. (279,177,114) (241,177,305)
-------------- --------------
Total increase (decrease)...... (54,136,543) 286,251,212
Net Assets
Beginning of period............ 4,067,326,157 3,781,074,945
-------------- --------------
End of period.................. $4,013,189,614 $4,067,326,157
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) 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, cable,
airport, seaport and toll road 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 period, 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 period. 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 period.
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 period 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 debt 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 (Unaudited) 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: Effective January 1, 1996, the Fund discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital shares, equivalent on
a
per share basis to the amount of distributable net investment income on the date
of the transaction, is credited or charged to undistributed net investment
income. The balance of $193,553,721 of undistributed net investment income at
December 31, 1995, resulting from equalization was transferred to paid-in
capital in excess of par. Such reclassification has no effect on net assets,
results of operations, or net asset value per share.
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 decrease undistributed net investment income by $257,316
and increase accumulated net realized gain on investments by $257,316 for
realized foreign currency losses during the six months ended June 30, 1996. 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. Effective January 2, 1996, Prudential Securities
Incorporated (``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. PSI is also distributor of the Class B, Class C and Class
Z shares of the Fund. The Fund compensates 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.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for the six
months ended June 30, 1996 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 six months ended
June 30, 1996.
PSI has advised the Fund that it has received approximately $92,645,500 in
front-end sales charges resulting from sales of Class A shares during the six
months ended June 30, 1996. From these fees, PSI paid such sales charges to
Pruco Securities Corporation, an affiliated broker-dealer, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI advised the Fund that for the six months ended June 30, 1996, it received
approximately $2,611,100 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.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL UTILITY FUND
- --------------------------------------------------------------------------------
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 six months ended June 30,
1996, the Fund incurred fees of approximately $2,382,000 for the services of
PMFS. As of June 30, 1996, approximately $390,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations also include
certain out-of-pocket expenses paid to non-affiliates.
For the six months ended June 30, 1996, PSI earned approximately $43,600 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 six months ended June 30, 1996, were $301,462,392 and $636,316,579,
respectively.
The federal income tax basis of the Fund's investments at June 30, 1996 was
$3,049,387,611 and, accordingly, net unrealized appreciation for federal income
tax purposes was $888,564,315 (gross unrealized appreciation--$1,044,125,854;
gross unrealized depreciation--$155,561,539).
The Fund elected to treat approximately $117,800 of net currency losses incurred
during the two month period ended December 31, 1995 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 June 30, 1996, the Fund
had a 4.2% undivided interest in the joint account. The undivided interest for
the Fund represents $46,077,000 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., 5.40%, in the principal amount of $369,000,000, repurchase
price $369,055,350, due 7/1/96. The value of the collateral including accrued
interest was $377,194,429.
Goldman, Sachs & Co., Inc., 5.47%, in the principal amount of $369,000,000,
repurchase price $369,056,068, due 7/1/96. The value of the collateral including
accrued interest was $376,380,556.
Smith Barney, Inc., 5.50%, in the principal amount of $369,000,000, repurchase
price $369,056,375, due 7/1/96. The value of the collateral including accrued
interest was $376,380,118.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z 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. Effective March 1,
1996, the Fund commenced offering Class Z shares. Class Z shares are not subject
to any sales or redemption charge and are offered exclusively for sale to
participants of the PSI 401(k) Plan, a defined contribution plan sponsored by
PSI.
There are 2 billion shares of $.01 par value per share common stock authorized
which consists of 500 million shares of Class A common stock, 700 million shares
of Class B common stock, 400 million shares of Class C common stock and 400
million shares of Class Z common stock. Transactions in shares of common stock
were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------- ------------ ---------------
<S> <C> <C>
Six months ended June 30, 1996:
Shares sold..................... 7,640,114 $ 77,059,362
Shares issued in reinvestment of
dividends and distributions... 3,118,592 31,152,634
Shares reacquired............... (21,690,385) (218,406,100)
------------ ---------------
Net decrease in shares
outstanding before
conversion.................... (10,931,679) (110,194,104)
Shares issued upon conversion
from Class B.................. 16,874,518 169,315,173
Shares reacquired upon
conversion into Class Z....... (3,501,686) (35,052,440)
------------ ---------------
Net increase in shares
outstanding................... 2,441,153 $ 24,068,629
------------ ---------------
------------ ---------------
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
------------ ---------------
------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- -------------------------------- ------------ ---------------
Six months ended June 30, 1996:
<S> <C> <C>
Shares sold..................... 8,527,875 $ 85,570,199
Shares issued in reinvestment of
dividends and distributions... 3,208,322 32,016,275
Shares reacquired............... (28,115,322) (282,582,458)
------------ ---------------
Net decrease in shares
outstanding before
conversion.................... (16,379,125) (164,995,984)
Shares reacquired upon
conversion into Class A....... (16,902,132) (169,315,173)
------------ ---------------
Net decrease in shares
outstanding................... (33,281,257) $ (334,311,157)
------------ ---------------
------------ ---------------
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)
------------ ---------------
------------ ---------------
<CAPTION>
Class C
- --------------------------------
<S> <C> <C>
Six months ended June 30, 1996:
Shares sold..................... 148,842 $ 1,496,302
Shares issued in reinvestment of
dividends and distributions... 6,383 63,717
Shares reacquired............... (79,912) (798,504)
------------ ---------------
Net increase in shares
outstanding................... 75,313 $ 761,515
------------ ---------------
------------ ---------------
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
------------ ---------------
------------ ---------------
<CAPTION>
Class Z Shares Amount
- -------------------------------- ------------ ---------------
<S> <C> <C>
March 1, 1996(a) through
June 30, 1996:
Shares sold..................... 390,448 $ 4,049,052
Shares issued in reinvestment of
dividends and distributions... 67,963 678,599
Shares reacquired............... (942,287) (9,476,192)
------------ ---------------
Net decrease in shares
outstanding
before conversion............. (483,876) (4,748,541)
Shares issued upon conversion
from Class A.................. 3,501,686 35,052,440
------------ ---------------
Net increase in shares
outstanding................... 3,017,810 $ 30,303,899
------------ ---------------
------------ ---------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
11 -----
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------
Six Months
Ended
Year Ended December 31,
June 30,
---------------------------------------
1996(c)
1995 1994 1993 1992
----------
------ ------ ------ ------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 9.87
$ 8.27 $ 9.72 $ 8.97 $ 8.72
-----
------ ------ ------ ------
Income from investment operations
Net investment income........................................... .17
.30 .31 .33 .38
Net realized and unrealized gains (losses) on investment and
foreign currency transactions................................ .60
1.79 (1.06) 1.12 .45
-----
------ ------ ------ ------
Total from investment operations............................. .77
2.09 (.75) 1.45 .83
-----
------ ------ ------ ------
Less distributions
Dividends from net investment income............................ (.15)
(.30) (.32) (.29) (.34)
Distributions from net realized gains........................... (.05)
(.19) (.36) (.41) (.24)
Distributions in excess of net realized gains................... --
-- (.02) -- --
-----
------ ------ ------ ------
Total distributions.......................................... (.20)
(.49) (.70) (.70) (.58)
-----
------ ------ ------ ------
Net asset value, end of period.................................. $10.44
$ 9.87 $ 8.27 $ 9.72 $ 8.97
-----
-----
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN(a)................................................. 7.91%
25.74% (7.89)% 16.28% 9.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)............................. $1,833
$1,709 $254 $337 $201
Average net assets (000,000).................................... $1,708
$1,440 $294 $287 $149
Ratios to average net assets:
Expenses, including distribution fees........................ .86%(b)
.88% .88% .80% .81%
Expenses, excluding distribution fees........................ .61%(b)
.63% .63% .60% .61%
Net investment income........................................ 3.34%(b)
3.12% 3.37% 3.16% 4.14%
For Class A, B, C and Z shares:
Portfolio turnover rate...................................... 8%
14% 15% 24% 24%
Average commission rate paid per share....................... $.0368
$.0302 N/A N/A N/A
<CAPTION>
1991
------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 7.63
------
Income from investment operations
Net investment income........................................... .39
Net realized and unrealized gains (losses) on investment and
foreign currency transactions................................ 1.10
------
Total from investment operations............................. 1.49
------
Less distributions
Dividends from net investment income............................ (.39)
Distributions from net realized gains........................... (.01)
Distributions in excess of net realized gains................... --
------
Total distributions.......................................... (.40)
------
Net asset value, end of period.................................. $ 8.72
------
------
TOTAL RETURN(a)................................................. 19.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)............................. $111
Average net assets (000,000).................................... $85
Ratios to average net assets:
Expenses, including distribution fees........................ .87%
Expenses, excluding distribution fees........................ .67%
Net investment income........................................ 4.69%
For Class A, B, C and Z shares:
Portfolio turnover rate...................................... 38%
Average commission rate paid per share....................... 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 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) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- ------------------------------------------------------
Six Months
Ended
Year Ended December 31,
June 30,
---------------------------------------
1996(c)
1995 1994 1993 1992
----------
------ ------ ------ ------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 9.87
$ 8.26 $ 9.69 $ 8.96 $ 8.71
-----
------ ------ ------ ------
Income from investment operations
Net investment income........................................... .13
.22 .24 .24 .31
Net realized and unrealized gains (losses) on investment and
foreign currency transactions................................ .60
1.80 (1.05) 1.12 .46
-----
------ ------ ------ ------
Total from investment operations............................. .73
2.02 (.81) 1.36 .77
-----
------ ------ ------ ------
Less distributions
Dividends from net investment income............................ (.11)
(.22) (.24) (.22) (.28)
Distributions from net realized gains........................... (.05)
(.19) (.36) (.41) (.24)
Distributions in excess of net realized gains................... --
-- (.02) -- --
-----
------ ------ ------ ------
Total distributions.......................................... (.16)
(.41) (.62) (.63) (.52)
-----
------ ------ ------ ------
Net asset value, end of period.................................. $10.44
$ 9.87 $ 8.26 $ 9.69 $ 8.96
-----
-----
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN(a)................................................. 7.49%
24.80% (8.51)% 15.27% 9.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)............................. $2,144
$2,355 $3,526 $4,756 $3,438
Average net assets (000,000).................................... $2,279
$2,450 $4,152 $4,308 $3,027
Ratios to average net assets:
Expenses, including distribution fees........................ 1.61%(b)
1.63% 1.63% 1.60% 1.61%
Expenses, excluding distribution fees........................ .61%(b)
.63% .63% .60% .61%
Net investment income........................................ 2.59%(b)
2.37% 2.62% 2.36% 3.34%
<CAPTION>
1991
------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $7.638
------
Income from investment operations
Net investment income........................................... .32
Net realized and unrealized gains (losses) on investment and
foreign currency transactions................................ 1.10
------
Total from investment operations............................. 1.42
------
Less distributions
Dividends from net investment income............................ (.33)
Distributions from net realized gains........................... (.01)
Distributions in excess of net realized gains................... --
------
Total distributions.......................................... (.34)
------
Net asset value, end of period.................................. $ 8.71
------
------
TOTAL RETURN(a)................................................. 19.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)............................. $2,818
Average net assets (000,000).................................... $2,529
Ratios to average net assets:
Expenses, including distribution fees........................ 1.67%
Expenses, excluding distribution fees........................ .67%
Net investment income........................................ 3.89%
</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) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
- -------------------------------------------- -----------
August 1, March 1,
Six Months
1994(d) 1996(e)
Ended
Year Ended Through Through
June 30,
December 31, December 31, June 30,
1996(c)
1995 1994 1996
----------
------------ ------------ -----------
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 9.87
$ 8.26 $ 9.30 $ 10.05
-----
-----
------------ -----------
Income from investment operations
Net investment income........................................... .13
.22 .11 .12(c)
Net realized and unrealized gains (losses) on investment and
foreign currency transactions................................ .60
1.80 (.69) .48
-----
-----
------------ -----------
Total from investment operations............................. .73
2.02 (.58) .60
-----
-----
------------ -----------
Less distributions
Dividends from net investment income............................ (.11)
(.22) (.13) (.16)
Distributions from net realized gains........................... (.05)
(.19) (.31) (.05)
Distributions in excess of net realized gains................... --
-- (.02) --
-----
-----
------------ -----------
Total distributions.......................................... (.16)
(.41) (.46) (.21)
-----
-----
------------ -----------
Net asset value, end of period.................................. $10.44
$ 9.87 $ 8.26 $ 10.44
-----
-----
-----
-----
------------ -----------
------------ -----------
TOTAL RETURN(a)................................................. 7.49%
24.80% (6.27)% 6.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................................. $4,442
$3,455 $787 $31,508
Average net assets (000)........................................ $4,127
$2,181 $433 $32,581
Ratios to average net assets:
Expenses, including distribution fees........................ 1.61%(b)
1.63% 1.70%(b) .61%(b)
Expenses, excluding distribution fees........................ .61%(b)
.63% .70%(b) .61%(b)
Net investment income........................................ 2.59%(b)
2.37% 2.65%(b) 3.59%(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) Calculated based upon weighted average shares outstanding during the period.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
- ----- 14 See Notes to Financial Statements.
<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 that 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>
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>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.com
Directors
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
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of June 30, 1996 were not audited and,
accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
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