(ICON)
Prudential
Utility
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1996
(LOGO)
Lipper Utility Funds average. Information is based on the average return
of all funds (22) in this category for five years ended 12/31/96. Lipper
does not take into consideration applicable sales charge. Class A shares
only-inception 1/22/90. The Fund's one-year and since inception rankings
are 2 out of 90 and 3 out of 16, respectively. Past performance is not
indicative of future results.
(LOGO)
<PAGE>
Prudential Utility Fund, Inc.
1996 Was A Very Good Year.
We're pleased to report that Prudential Utility Fund Class A shares finished
the year as the No. 2 ranked utility fund in the country out of 90 similar
funds tracked by Lipper Analytical Services (Class B and C shares finished
at No. 3). The news was better on a five-year basis ended December 31, 1996.
Class A shares were ranked No. 1 out of 22 funds by Lipper (Class B, No. 3;
Class C shares were not in existence). For 10 years ended December 31, 1996,
Class B shares finished No. 2 out of eight funds (Class A shares were not in
existence). Lipper rankings were based upon total returns, which did not take
into account sales charges that could have changed the rankings.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 12/31/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 22.1% 80.7% N/A 116.5%
Class B 21.2 74.0 197.8% 939.8
Class C 21.2 N/A N/A 41.7
Class Z N/A N/A N/A 20.1
Lipper Utility Fund Avg3 9.9 62.0 155.9 **
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 12/31/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 16.0% 11.4% N/A 11.0%
Class B 16.2 11.6 11.5% 16.4
Class C 20.2 N/A N/A 15.5
</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 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. Class Z shares have been in existence
less than one year and average annual total returns are not 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 90 funds for one year, 22 funds for five years
and eight funds for 10 years.
**The Lipper Since Inception category return for Class A shares is 104.6%,
which includes 17 funds; Class B is 587.5% for four funds; Class C is 36.3%
for 68 funds; and Class Z is 9.5% for 91 funds.
How Investments Compared.
(As of 12/31/96)
(CHART)
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 have received
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
(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, environmental factors,
and rising interest rates. There can be no assurance that the Fund's
investment objective will be achieved.
We Seek
Total Return.
The Prudential Utility Fund is a bit different from other utility funds. Last
October, shareholders approved a slight change in our objective to seek total
return, through a combination of income and capital appreciation. That's why
we focused on natural gas and foreign utilities in 1996, which performed
better than U.S. electric and telephone utilities.
Strategy Session.
Long-Term Investing.
How often have you heard an investment adviser say that stocks should be
selected deliberately and methodically, and then held for the long term? That's
exactly
what we did.
A number of the holdings that propelled your Fund's stellar performance in
1996 were originally purchased in 1992 and 1993. That's when we started to
emphasize the gas pipeline and distribution companies, and de-emphasize
electric utilities and regional telephone companies.
Going For Gas.
Uncertainty is anathema in any business, especially in a regulated utility.
In 1992 and 1993, the natural gas pipeline and distribution companies were
emerging from a long period of uncertainty as they completed their transition
from federal regulation. We saw tremendous growth potential. At the same
time, many electric utilities and regional telephone companies seemed to be
in the early stages of a period of prolonged uncertainty. Deregulation loomed,
but how and when? Some of these companies would become supercharged while
others would short-circuit. Generally, domestic gas and foreign utilities
seemed more appealing. Overseas, the utility business was much more
predictable, because deregulation was further in the future.
Our Strategy Worked.
In 1995, our strategy started to sizzle. Gas prices started to rise as demand
expanded for this environmentally-friendly clean fuel of the future. At the
same time, we grew more and more wary of our telephone stocks, hanging up on
many of them, and reducing our holdings to about 4% in 1996 from as much as
17% in 1995.
At year end, we held 64% of our assets in some of the best performing areas of
utilities - 38% of our assets in U.S. gas pipeline and distribution companies,
and 26% in international utilities. We invested only 31% of assets in areas
that didn't perform as well: 27% in electric utilities and 4% in telephone
stocks. We also held 2% in miscellaneous and 3% in cash.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 12/31/96.
(CHART)
<PAGE>
What Went Well.
Right Place. Right Time.
We were in the right place at the right time in 1996. Gas distribution and
pipeline companies were the investments of choice in the world of U.S.
utilities in 1996, returning about 30% on average. In contrast, more typical
utility fund investments, in electric utilities and regional telephone
operating companies, performed poorly, barely breaking even. We're glad we
held more assets in gas than the typical utility fund, and less in electric
utilities and telephones.
The Urge To Merge.
In 1996, electric utilities accelerated preparations for the coming new era of
deregulation. Many of these companies will soon have to compete for the first
time for their customers (just like long-distance telephone service providers).
To strengthen their position, many electric utilities are broadening the
services they offer to provide customers one-stop shopping for their heating
and cooling needs. Your Fund benefited when a number of natural gas pipeline
and distribution companies it held merged with large, well-known electric
utilities.
We owned the following stocks which benefited from ongoing merger and
acquisition activity:
- - PanEnergy, our second-largest holding at 4.5% of total net assets, merged
with Duke Power, which provides electricity in North and South Carolina.
PanEnergy gained more than 60% last year. It is one of the largest natural
gas pipeline companies in the country, with 37,000 miles of pipe, mostly in
the Northeast and Midwest.
- - NorAm Energy, the nation's third largest natural gas distributor, which
we owned during 1996, was purchased by Houston Industries, the ninth-largest
U.S. electric utility. NorAm rose nearly 78% in 1996.
- - Enserch, one of Texas' largest natural gas distributors, was purchased by
Texas Utilities, the state's largest electric power provider. Enserch stock
rose more than 40% last year.
- - Pacific Enterprises, the nation's largest natural gas distributor, merged
with Enova, the parent company of San Diego Gas and Electric. Pacific serves
much of the region surrounding the service area of San Diego Gas and Electric.
- - Long Island Lighting (LILCO), in which we held 1% of total net assets, was
being acquired by Brooklyn Union Gas for a sizable premium. Lilco's stock rose
more than 30% last year.
Worldly Wise.
The place to own electric utilities and telephone companies in 1996 was
overseas, where they enjoy a regulatory environment that is currently more
hospitable than that in the U.S. We found far more predictability of revenues
and earnings abroad (and in some cases faster growth), which is why we owned
such stocks as Iberdrola, the Spanish electric power company; Stet Societa
Finanziaria Telefonica, the Italian telephone company; and National Power,
an electricity generating company in the United Kingdom. These three stocks
each rose about 60% in 1996.
Five Largest
Holdings.
4.8% Sonat
Natural Gas
4.5 PanEnergy
Natural Gas
3.8 Columbia Gas System
Natural Gas
3.5 Coastal
Natural Gas
3.4 Williams
Natural Gas
Expressed as a percentage of total net assets as of 12/31/96.
Looking Ahead.
We performed well in 1996 by owning large holdings in natural gas pipeline and
distribution companies and foreign utilities. We expect to continue that
strategy in 1997, although we do expect to change our holdings somewhat in
the year ahead for the following two reasons:
If the current series of mergers between natural gas distributors and
electric utilities continues, our assets in gas will decrease and electric
utilities will increase. That's just fine with us, because it allows the
stock market to diversify our holdings without paying trading costs.
If we see other opportunities, we might selectively take profits in the gas
industry, because it is our largest investment. However, we still remain
convinced that the long-term fundamentals in natural gas are excellent.
- ---------------------------------------------------------------------------
1
<PAGE>
A Conversation with Portfolio Manager David A. Kiefer.
Why Utilities Should Do Well In 1997.
Q. David, the stock market ended 1996 at an all-time record. What can we
expect in 1997?
A. Utilities should do well in 1997. Investors are starting to get a little
bit worried about the high levels of the markets, which may encourage them
to look for more stocks that may be less volatile. That's something that
investors have traditionally found in utilities stocks.
Q. Are the owners of utilities stocks insulated in any way if stock prices fall?
A. We will always need electricity, gas and telephone service. That earns
steady revenues for many utilities, helping them pay dividends which are
generally at or above the level of the market as a whole.Q. So the utility
business is rather predictable?
A. Exactly. Utility company revenues are far less cyclical than others. One
factor that makes stock prices extremely volatile these days is speculation
about earnings disappointments.
Expectations of earnings growth for utilities are not as high as they are
for the broader market. So there's perhaps less risk of earnings
disappointments in some of these sectors. I think the gas and electric
sectors in particular have a fairly good outlook for meeting earnings
growth expectations.
Q. What if interest rates rise?
A. Of course, for the entire utilities sector, rising interest rates do pose
a risk. I think the link between interest rates and utilities stock prices
is not as strong as it has been. However, historically, rising interest
rates have hurt utility stocks.
Annual Performance of Class B Shares
(CHART)
1995 and 1996 were both exceptional years for the stock market and for the
Prudential Utility Fund. But not all years are alike. Past performance is not
indicative of future results. For average annual returns on a one-, five- and
10-year basis, please return to the first page of this letter.
(PICTURE)
- -----------------------------------------------------------------------------
2
<PAGE>
President's Letter February 3, 1997
- ------------------------------------------------------------------------------
(PICTURE)
Dear Shareholder:
For many investors, 1996 was the second year of back-to-back, double-digit
stock market returns. In late November, the Dow Jones Industrial Average
passed 6500 - only weeks after breaking the 6000 mark in mid-October - and
another record high was reached in January 1997. America's economic expansion
is entering its sixth year and there seems little evidence of an end to the
continued modest growth and low inflation we've enjoyed for the last several
years.
This is good news. For most investors it's meant an increase in their share
values for college funds, retirement nest eggs or other long-term financial
goals. However, as you read your year-end account statements and make plans
for 1997, it's important to remember that there never is a sure thing when
it comes to investment returns. Stock and bond markets go down just as they go
up. (Did you notice the brief period of decline this past summer?) No one
likes to see the value of their investments fall but such periods remind us
we must keep our expectations realistic.
Regardless of the market's direction, a wise investor plans for tomorrow's
needs today. Your Financial Advisor or Registered Representative can help you:
- - Review your portfolio and suggest strategies for 1997, such as diversifying
across different types of investments. Financial markets seldom move in
lockstep. By investing in a mix of stock and bond funds (foreign & domestic)
and money market funds you may be in a better position to achieve your
long-term goals and to weather periods of uncertainty.
- - See why annuities have become popular retirement planning tools. The
choices are broader than ever. Our new Discovery SelectSM Variable Annuity
offers you many of the keys to successful retirement planning, including a
personalized asset allocation program and a choice of 21 variable- or
fixed-rate investment options offering a broad array of investment
objectives and styles.
- - Explain new retirement savings developments. For example, Congress has
expanded the contribution limit on spousal IRAs. And don't forget, it's
not too late for you to make a contribution to your IRA or open one for
1996. The IRS deadline is April 15, 1997, but it's best to act sooner.
Why not contact your Financial Advisor or Registered Representative today?
If you are interested in Discovery SelectSM call for a prospectus, which
contains more complete information. Read it carefully before you invest.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
P.S. Your 1997 Prudential IRA contribution may qualify you for a waiver of the
annual custodial fee. Ask your financial representative for details.
- ------------------------------------------------------------------------------
3
<PAGE>
Portfolio of Investments as of December 31, 1996 PRUDENTIAL UTILITY FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--96.8%
COMMON STOCKS--91.0%
- ------------------------------------------------------------
Communications--13.7%
1,152,200 AT&T Corp. $ 50,120,700
1,169,800 BCE Inc. (Canada) 55,857,950
990,500 Deutsche Telekom, A.G. (ADR)
(Germany) (a) 20,181,438
698,000 Frontier Corporation 15,792,250
774,700 Millicom International Cellular S.
A. (Luxembourg) (a) 24,887,237
1,599,200 Southern New England
Telecommunications Corp. 62,168,900
1,000,000 Sprint Corp. 39,875,000
18,575,000 Stet-Societa Finanziaria
Telefonica, S.P.A. (Italy) 84,346,163
1,991,700 Tele Danmark (ADR) (Denmark) 54,273,825
573,400 Telebras (ADR) (Brazil) 43,865,100
824,000 Telefonica de Espana, S.A. (ADR)
(Spain) 57,062,000
1,503,000 Telefonica del Peru, S.A. (ADR)
(Peru) 28,369,125
1,211,500 Telefonos de Mexico, S.A. (ADR)
(Mexico) 39,979,500
---------------
576,779,188
- ------------------------------------------------------------
Electrical Power--34.6%
1,258,927 AES Corp. (a) 58,540,105
1,045,400 Boston Edison Co. 28,095,125
1,517,700 Centerior Energy Corp. 16,315,275
981,300 Central Louisiana Electric
Company, Inc. 27,108,412
1,179,500 Central Maine Power Co. 13,711,688
2,832,685 CINergy Corporation 94,540,862
2,300,000 CMS Energy Corporation 77,337,500
948,202 Companhia Energetica de Minas
Gerais-Cemig (ADR) (Brazil) 32,001,817
787,400 DTE Energy Co. 25,492,075
803,100 Eastern Utilities Associates 13,953,863
2,415,000 Edison International 47,998,125
83,540 El Paso Electric Co. (a) 543,010
947,700 Empresa Nacional de Electricidad
S.A. (ADR) (Spain) 66,339,000
330,001 Evn Energie - Versorgung
Niederoesterreich AG (Austria) $ 49,688,387
6,300,000 Iberdrola (Spain) 89,244,746
2,798,500 Illinova Corp. 76,958,750
2,140,600 Long Island Lighting Co. 47,360,775
7,250,000 National Power PLC
(United Kingdom) 60,716,732
2,165,500 New York State Electric & Gas
Corp. 46,828,937
4,000,000 Niagara Mohawk Power Corp. (a) 39,500,000
967,000 NIPSCO Industries, Inc. 38,317,375
2,811,400 Northeast Utilities Co. 37,251,050
393,000 Oester Elektrizita (Austria) 29,423,722
2,000,000 Ohio Edison Co. 45,500,000
900,000 Pacific Gas & Electric Co. 18,900,000
2,578,600 PECO Energy Co. 65,109,650
2,303,400 Pinnacle West Capital Corp. 73,132,950
906,800 Public Service Company of Colorado 35,251,850
2,057,000 Public Service Company of
New Mexico 40,368,625
1,670,800 Rochester Gas & Electric Corp. 31,954,050
1,526,100 Texas Utilities Co. 62,188,575
1,490,740 Tucson Electric Power Co. (a) 24,783,553
1,380,500 Unicom Corp. 37,446,062
---------------
1,451,902,646
- ------------------------------------------------------------
Natural Gas--41.2%
1,000,000 Alberta Energy Co., Ltd. (Canada) 24,000,000
283,650 Bay State Gas Co. 8,013,113
2,231,600 British Gas PLC (ADR)
(United Kingdom) 85,079,750
450,000 Burlington Resources, Inc. 22,668,750
3,000,275 Coastal Corp. 146,638,441
2,500,000 Columbia Gas System, Inc. 159,062,500
407,200 Consolidated Natural Gas Co. 22,497,800
117,600 Eastern Enterprises, Inc. 4,160,100
1,299,100 El Paso Natural Gas Co. 65,604,550
500,000 Energen Corp. 15,125,000
417,900 Enron Corp. 18,021,938
</TABLE>
- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of December 31, 1996 PRUDENTIAL UTILITY FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Natural Gas (cont'd.)
3,272,300 ENSERCH Corp. $ 75,262,900
1,500,000 Equitable Resources, Inc. 44,625,000
375,000 RAO Gazprom (ADR) (Russia) (a) 6,656,250
690,300 KN Energy, Inc. 27,094,275
703,600 MCN Corporation 20,316,450
810,600 NICOR Inc. 28,978,950
3,148,000 NorAm Energy Corp. 48,400,500
700,000 Oryx Energy Co.(a) 17,325,000
3,544,300 Pacific Enterprises 107,658,112
4,172,800 PanEnergy Corp. 187,776,000
117,600 Providence Energy Corp. 2,058,000
1,880,400 Questar Corp. 69,104,700
3,914,600 Sonat, Inc. 201,601,900
205,400 Southwest Gas Corporation 3,953,950
857,700 TPC Corp. (a) 7,719,300
6,200,000 TransCanada Pipelines, Ltd.
(Canada) 108,573,513
2,200,000 Westcoast Energy, Inc. (Canada) 36,850,000
936,200 Western Gas Resources, Inc. 18,021,850
3,813,512 Williams Cos., Inc. 143,006,681
161,150 Yankee Energy System, Inc. 3,444,581
---------------
1,729,299,854
- ------------------------------------------------------------
Realty Investment Trust--1.5%
31,200 Charles E. Smith Residential
Realty, Inc. 912,600
447,900 Crescent Real Estate Equities,
Inc. 23,626,725
969,900 Equity Residential Property Trust 40,008,375
---------------
64,547,700
---------------
Total common stocks
(cost $2,664,855,259) 3,822,529,388
---------------
PREFERRED STOCKS--1.5%
- ------------------------------------------------------------
Communications--1.3%
300,000 Compania de Inversiones,
Convertible,
7.00% (Argentina) 15,937,500
475,000 Nortel Inversora S. A.,
Convertible, 10.00% (Argentina) 19,475,000
398,000 Philippine Long Distance Telephone
Co., Convertible (GDR) (The
Philippines) $ 20,298,000
---------------
55,710,500
- ------------------------------------------------------------
Electrical Power
109,300 KENETECH Corp., Convertible, $2.18 136,625
- ------------------------------------------------------------
Natural Gas--0.2%
359,100 Enron Corp., 6.25% 8,618,400
---------------
Total preferred stocks
(cost $66,452,300) 64,465,525
---------------
Principal
Amount
(000)
BONDS--4.3%
- ------------------------------------------------------------
Electrical Power--0.7%
$ 3,055 Arkansas Power & Light Co.,
10.00%, 2/1/20 3,277,831
10,000 Cleveland Electric Illumination
Co.,
9.375%, 3/1/17 10,256,100
10,000 Niagara Mohawk Power Corp.,
9.50%, 3/1/21 9,683,200
5,000 Texas Utilities Co.,
9.75%, 5/1/21 5,658,850
---------------
28,875,981
- ------------------------------------------------------------
Natural Gas--2.5%
Arkla, Inc.,
20,000 10.00%, 11/15/19 22,000,000
Burlington Resources, Inc.,
10,000 8.50%, 10/1/01 10,668,800
15,000 9.125%, 10/1/21 17,612,400
Coastal Corp.,
5,000 8.125%, 9/15/02 5,288,400
15,000 9.625%, 5/15/12 17,886,150
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
Portfolio of Investments as of December 31, 1996
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Natural Gas (cont'd.)
Columbia Gas System, Inc.,
$ 1,731 6.39%, 11/28/00 $ 1,719,783
1,730 6.61%, 11/28/02 1,716,593
1,730 6.80%, 11/28/05 1,696,905
1,730 7.05%, 11/28/07 1,706,351
1,730 7.32%, 11/28/10 1,701,455
1,730 7.42%, 11/28/15 1,684,812
1,730 7.62%, 11/28/25 1,682,062
Oryx Energy Co.,
2,000 9.50%, 11/1/99 2,121,700
1,000 7.50%, 5/15/14 971,250
Williams Cos., Inc.,
15,000 8.875%, 9/15/12 16,855,650
---------------
105,312,311
---------------
- ------------------------------------------------------------
Sovereign Bonds--1.1%
45,000 United Mexican States,
7.5625%, 8/6/01 45,108,000
---------------
Total bonds
(cost $168,922,337) 179,296,292
---------------
Total long-term investments
(cost $2,900,229,896) 4,066,291,205
---------------
SHORT-TERM INVESTMENT--3.0%
- ------------------------------------------------------------
Repurchase Agreement
124,122 Joint Repurchase Agreement
Account,
6.61%, 1/2/97
(cost $124,122,000; Note 5) 124,122,000
---------------
- ------------------------------------------------------------
Total Investments--99.8%
(cost $3,024,351,896; Note 4) 4,190,413,205
Other assets in excess of
liabilities--0.2% 10,179,143
---------------
Net Assets--100% $ 4,200,592,348
---------------
---------------
</TABLE>
- ---------------
(a) Non-income producing securities.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets December 31, 1996
<S> <C>
Investments, at value (cost $3,024,351,896)............................................................. $ 4,190,413,205
Cash.................................................................................................... 1,193,421
Foreign currency, at value (cost $103,651).............................................................. 113,290
Dividends and interest receivable....................................................................... 14,623,491
Receivable for investments sold......................................................................... 14,359,045
Receivable for Fund shares sold......................................................................... 5,761,048
Deferred expenses and other assets...................................................................... 106,961
-----------------
Total assets......................................................................................... 4,226,570,461
-----------------
Liabilities
Payable for Fund shares reacquired...................................................................... 16,721,432
Payable for investments purchased....................................................................... 3,675,500
Distribution fee payable................................................................................ 2,232,118
Management fee payable.................................................................................. 1,433,010
Accrued expenses and other liabilities.................................................................. 1,253,193
Foreign withholding taxes payable....................................................................... 662,860
-----------------
Total liabilities.................................................................................... 25,978,113
-----------------
Net Assets.............................................................................................. $ 4,200,592,348
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 3,861,981
Paid-in capital in excess of par..................................................................... 2,985,048,667
-----------------
2,988,910,648
Undistributed net investment income.................................................................. 557,976
Accumulated net realized gain on investments......................................................... 44,981,682
Net unrealized appreciation on investments and foreign currencies.................................... 1,166,142,042
-----------------
Net assets, December 31, 1996........................................................................... $ 4,200,592,348
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($2,022,976,817 / 185,995,783 shares of common stock issued and outstanding)...................... $10.88
Maximum sales charge (5.00% of offering price)....................................................... .57
-----------------
Maximum offering price to public..................................................................... $11.45
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($2,137,168,779 / 196,484,277 shares of common stock issued and outstanding)...................... $10.88
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($6,001,185 / 551,735 shares of common stock issued and outstanding).............................. $10.88
-----------------
-----------------
Class Z:
Net asset value, offering price and redemption price per share
($34,445,567 / 3,166,275 shares of common stock issued and outstanding)........................... $10.88
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1996
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $6,118,679)............... $ 141,030,867
Interest.............................. 17,714,542
-----------------
Total income....................... 158,745,409
-----------------
Expenses
Distribution fee--Class A............. 4,464,713
Distribution fee--Class B............. 21,840,150
Distribution fee--Class C............. 45,173
Management fee........................ 16,378,451
Transfer agent's fees and expenses.... 5,847,000
Reports to shareholders............... 1,353,000
Custodian's fees and expenses......... 500,000
Registration fees..................... 150,000
Insurance............................. 101,000
Audit fees............................ 72,000
Tax expense........................... 67,000
Legal fees............................ 50,000
Directors' fees....................... 36,000
Miscellaneous......................... 10,309
-----------------
Total expenses..................... 50,914,796
-----------------
Net investment income.................... 107,830,613
-----------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions............... 320,997,570
Foreign currency transactions......... (761,684)
-----------------
320,235,886
-----------------
Net change in unrealized appreciation on:
Investments........................... 357,490,812
Foreign currencies.................... 81,936
-----------------
357,572,748
-----------------
Net gain on investments and foreign
currencies............................ 677,808,634
-----------------
Net Increase in Net Assets
Resulting from Operations................ $ 785,639,247
-----------------
-----------------
</TABLE>
PRUDENTIAL UTILITY FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income....... $ 107,830,613 $ 103,210,192
Net realized gain on
investment and foreign
currency transactions.... 320,235,886 98,889,115
Net change in unrealized
appreciation of
investments and foreign
currencies............... 357,572,748 673,298,687
-------------- --------------
Net increase in net assets
resulting from
operations............... 785,639,247 875,397,994
-------------- --------------
Net equalization debits........ -- (164,415,069)
-------------- --------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (56,517,524) (51,342,292)
Class B.................. (49,728,071) (55,339,423)
Class C.................. (110,317) (56,691)
Class Z.................. (1,061,722) --
-------------- --------------
(107,417,634) (106,738,406)
-------------- --------------
Distributions from net
realized capital gains
Class A.................. (136,028,661) (32,215,260)
Class B.................. (151,218,004) (44,539,060)
Class C.................. (377,943) (61,682)
Class Z.................. (2,368,426) --
-------------- --------------
(289,993,034) (76,816,002)
-------------- --------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold... 334,072,755 280,270,137
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 363,055,255 158,587,981
Cost of shares reacquired... (952,090,398) (680,035,423)
-------------- --------------
Net decrease in net assets
from Fund share
transactions............. (254,962,388) (241,177,305)
-------------- --------------
Total increase................. 133,266,191 286,251,212
Net Assets
Beginning of year.............. 4,067,326,157 3,781,074,945
-------------- --------------
End of year.................... $4,200,592,348 $4,067,326,157
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
8 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
Prudential Utility Fund, Inc. (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 total return, through a combination of
income and 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 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 losses on foreign currency transactions represent net foreign
exchange losses 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 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.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
- --------------------------------------------------------------------------------
9<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
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 $485,355
and increase accumulated net realized gain on investments by $485,355 for
realized foreign currency losses during the year ended December 31, 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 has a distribution agreement with Prudential Securities Incorporated
(``PSI''), which acts as the distributor of the Class A, 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 for Class A, B and C shares are accrued
daily and payable monthly. No distribution or service fees are paid to PSI as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated PSI for the year
ended December 31, 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 year ended December 31, 1996.
PSI has advised the Fund that it has received approximately $619,200 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 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 year ended December 31, 1996, it received
approximately $4,389,100 and $2,100 in contingent deferred sales charges imposed
upon redemptions by certain Class B and Class C shareholders, respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
``Funds''), entered into a credit agreement (the ``Agreement'') on December 31,
1996 with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of December 31,
1996. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
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,
1996, the Fund incurred fees of approximately $4,616,000 for the services of
PMFS. As of December 31, 1996, approximately $372,000 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 year ended December 31, 1996, PSI earned approximately $222,000 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, 1996, were $659,401,996 and $1,259,861,045,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1996 was
$3,029,764,193 and, accordingly, net unrealized appreciation for federal income
tax purposes was $1,160,649,012 (gross unrealized appreciation--$1,261,415,560;
gross unrealized depreciation--$100,766,548).
The Fund elected to treat approximately $276,300 of net currency losses incurred
during the two month period ended December 31, 1996 as having occurred in the
following fiscal year.
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 December 31, 1996, the
Fund had a 11.4% undivided interest in the joint account. The undivided interest
for the Fund represents $124,122,000 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., 6.75%, in the principal amount of $341,000,000, repurchase
price $341,127,875, due 1/2/97. The value of the collateral including accrued
interest was $349,151,276.
Goldman, Sachs & Co., Inc., 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,820,889.
J.P. Morgan Securities, 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,822,540.
Sanwa Securities USA, 6.00%, in the principal amount of $68,014,000, repurchase
price $68,036,671, due 1/2/97. The value of the collateral including accrued
interest was $69,375,117.
- ------------------------------------------------------------
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 a
limited group of investors.
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>
Year ended December 31, 1996:
Shares sold..................... 15,308,482 $ 159,264,202
Shares issued in reinvestment of
dividends and distributions... 16,527,013 175,127,592
Shares reacquired............... (41,901,121) (433,594,928)
------------ ---------------
Net decrease in shares
outstanding before
conversion.................... (10,065,626) (99,203,134)
Shares issued upon conversion
from Class B.................. 26,433,307 269,740,107
Shares reacquired upon
conversion into Class Z....... (3,501,686) (35,052,440)
------------ ---------------
Net increase in shares
outstanding................... 12,865,995 $ 135,484,533
------------ ---------------
------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<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
------------ ---------------
------------ ---------------
<CAPTION>
Class B
- --------------------------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold..................... 15,690,293 $ 161,351,912
Shares issued in reinvestment of
dividends and distributions... 17,344,216 184,033,919
Shares reacquired............... (48,711,671) (500,182,084)
------------ ---------------
Net decrease in shares
outstanding before
conversion.................... (15,677,162) (154,769,253)
Shares reacquired upon
conversion into Class A....... (26,471,144) (269,740,107)
------------ ---------------
Net decrease in shares
outstanding................... (42,148,306) $ (424,536,360)
------------ ---------------
------------ ---------------
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 Shares Amount
- -------------------------------- ------------ ---------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold..................... 282,613 $ 2,928,285
Shares issued in reinvestment of
dividends and distributions... 43,560 463,633
Shares reacquired............... (124,537) (1,271,152)
------------ ---------------
Net increase in shares
outstanding................... 201,636 $ 2,120,766
------------ ---------------
------------ ---------------
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
- --------------------------------
<S> <C> <C>
March 1, 1996(a) through
December 31, 1996:
Shares sold..................... 1,002,069 $ 10,528,356
Shares issued in reinvestment of
dividends and distributions... 324,254 3,430,111
Shares reacquired............... (1,661,734) (17,042,234)
------------ ---------------
Net decrease in shares
outstanding
before conversion............. (335,411) (3,083,767)
Shares issued upon conversion
from Class A.................. 3,501,686 35,052,440
------------ ---------------
Net increase in shares
outstanding................... 3,166,275 $ 31,968,673
------------ ---------------
------------ ---------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
12
<PAGE>
Financial Highlights PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
----------------------------------------------------
1996(b) 1995 1994 1993 1992
<CAPTION>
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................................... $ 9.87 $ 8.27 $ 9.72 $ 8.97 $ 8.72
-------- ------ ------ ------ ------
Income from investment operations
Net investment income................................................. .32 .30 .31 .33 .38
Net realized and unrealized gains (losses) on investment and foreign
currency transactions.............................................. 1.80 1.79 (1.06) 1.12 .45
-------- ------ ------ ------ ------
Total from investment operations................................... 2.12 2.09 (.75) 1.45 .83
-------- ------ ------ ------ ------
Less distributions
Dividends from net investment income.................................. (.32) (.30) (.32) (.29) (.34)
Distributions from net realized gains................................. (.79) (.19) (.36) (.41) (.24)
Distributions in excess of net realized gains......................... -- -- (.02) -- --
-------- ------ ------ ------ ------
Total distributions................................................ (1.11) (.49) (.70) (.70) (.58)
-------- ------ ------ ------ ------
Net asset value, end of year.......................................... $10.88 $ 9.87 $ 8.27 $ 9.72 $ 8.97
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
TOTAL RETURN(a)....................................................... 22.09% 25.74% (7.89)% 16.28% 9.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000,000)..................................... $2,023 $1,709 $254 $337 $201
Average net assets (000,000).......................................... $1,786 $1,440 $294 $287 $149
Ratios to average net assets:
Expenses, including distribution fees.............................. .86% .88% .88% .80% .81%
Expenses, excluding distribution fees.............................. .61% .63% .63% .60% .61%
Net investment income.............................................. 3.10% 3.12% 3.37% 3.16% 4.14%
For Class A, B, C and Z shares:
Portfolio turnover rate............................................ 17% 14% 15% 24% 24%
Average commission rate paid per share............................. $.0332 $.0302 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.
(b) Calculated based upon weighted average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
----------------------------------------------------
1996(b) 1995 1994 1993 1992
<CAPTION>
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................................... $ 9.87 $ 8.26 $ 9.69 $ 8.96 $ 8.71
-------- ------ ------ ------ ------
Income from investment operations
Net investment income................................................. .24 .22 .24 .24 .31
Net realized and unrealized gains (losses) on investment and foreign
currency transactions.............................................. 1.80 1.80 (1.05) 1.12 .46
-------- ------ ------ ------ ------
Total from investment operations................................... 2.04 2.02 (.81) 1.36 .77
-------- ------ ------ ------ ------
Less distributions
Dividends from net investment income.................................. (.24) (.22) (.24) (.22) (.28)
Distributions from net realized gains................................. (.79) (.19) (.36) (.41) (.24)
Distributions in excess of net realized gains......................... -- -- (.02) -- --
-------- ------ ------ ------ ------
Total distributions................................................ (1.03) (.41) (.62) (.63) (.52)
-------- ------ ------ ------ ------
Net asset value, end of year.......................................... $10.88 $ 9.87 $ 8.26 $ 9.69 $ 8.96
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
TOTAL RETURN(a)....................................................... 21.16% 24.80% (8.51)% 15.27% 9.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000,000)..................................... $2,137 $2,355 $3,526 $4,756 $3,438
Average net assets (000,000).......................................... $2,184 $2,450 $4,152 $4,308 $3,027
Ratios to average net assets:
Expenses, including distribution fees.............................. 1.61% 1.63% 1.63% 1.60% 1.61%
Expenses, excluding distribution fees.............................. .61% .63% .63% .60% .61%
Net investment income.............................................. 2.35% 2.37% 2.62% 2.36% 3.34%
</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.
(b) Calculated based upon weighted average shares outstanding during the year.
- --------------------------------------------------------------------------------
14 See Notes to Financial Statements.
<PAGE>
Financial Highlights PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
------------------------------------ ------------
August 1, March 1,
Year Ended December 1994(d) 1996(e)
31, Through Through
------------------- December 31, December 31,
1996(b) 1995 1994 1996(b)
-------- ------ ------------ ------------
<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................................................. .24 .22 .11 .29
Net realized and unrealized gains (losses) on investment and foreign
currency transactions.............................................. 1.80 1.80 (.69) 1.67
-------- ------ ------------ ------------
Total from investment operations................................... 2.04 2.02 (.58) 1.96
-------- ------ ------------ ------------
Less distributions
Dividends from net investment income.................................. (.24) (.22) (.13) (.34)
Distributions from net realized gains................................. (.79) (.19) (.31) (.79)
Distributions in excess of net realized gains......................... -- -- (.02) --
-------- ------ ------------ ------------
Total distributions................................................ (1.03) (.41) (.46) (1.13)
-------- ------ ------------ ------------
Net asset value, end of period........................................ $10.88 $ 9.87 $ 8.26 $ 10.88
-------- ------ ------------ ------------
-------- ------ ------------ ------------
TOTAL RETURN(a)....................................................... 21.16% 24.80% (6.27)% 20.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................................... $6,001 $3,455 $787 $34,446
Average net assets (000).............................................. $4,517 $2,181 $433 $34,291
Ratios to average net assets:
Expenses, including distribution fees.............................. 1.61% 1.63% 1.70%(c) .61%(c)
Expenses, excluding distribution fees.............................. .61% .63% .70%(c) .61%(c)
Net investment income.............................................. 2.35% 2.37% 2.65%(c) 3.35%(c)
</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) Calculated based upon weighted average shares outstanding during the year.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
<PAGE>
Report of Independent Accountants PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Utility Fund, Inc.
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, Inc. (the
``Fund'') at December 31, 1996, 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 presented, 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, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 28, 1997
Tax Information PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1996) as to the federal tax status of
dividends paid by the Fund during its fiscal year ended December 31, 1996.
During 1996, the Fund paid dividends of $1.114 per Class A share, $1.034 per
Class B share, $1.034 per Class C share, and $1.1325 per Class Z share. Of these
amounts, $.664 per Class A, B, C, and Z shares represent distributions from
long-term capital gains and is taxable as such. The remaining $.450 per Class A
share, $.370 per Class B share, $.370 per Class C share and $.4685 per Class Z
share represent dividends from ordinary income (net investment income and
short-term capital gains). Further, we wish to advise you that 67% of the
ordinary income dividends paid in 1996 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.
- --------------------------------------------------------------------------------
16
<PAGE>
Supplemental Proxy Information PRUDENTIAL UTILITY FUND, INC.
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Utility Fund, Inc. (the
``Fund'') was held on Wednesday, October 30, 1996 at the offices of Prudential
Securities Incorporated, One Seaport Plaza, New York, New York. The meeting was
held for the following purposes:
(1) To elect Directors as follows: Edward D. Beach, Delayne Dedrick Gold, Robert
F. Gunia, Donald D. Lennox, Douglas H. McCorkindale, Mendel A. Melzer,
Thomas T. Mooney, Stephen P. Munn, Richard A. Redeker, Robin B. Smith, Louis
A. Weil, III and Clay T. Whitehead.
(2) To approve the proposed change in the Fund's investment objective.
(3) To ratify the selection of Price Waterhouse LLP as independent public
accountants for the fiscal year ending December 31, 1996.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Matter Votes for Votes against Abstentions
---------------- ------------- -----------
<S> <C> <C> <C>
(1) Edward D. Beach 184,766,383 -- 5,803,009
Delayne Dedrick Gold 185,141,782 -- 5,427,610
Robert F. Gunia 185,359,631 -- 5,209,761
Donald D. Lennox 184,887,276 -- 5,682,116
Douglas H. McCorkindale 185,193,619 -- 5,375,773
Mendel A. Melzer 185,168,300 -- 5,401,092
Thomas T. Mooney 185,219,852 -- 5,349,540
Stephen P. Munn 185,345,387 -- 5,224,005
Richard A. Redeker 185,333,801 -- 5,235,591
Robin B. Smith 185,273,632 -- 5,295,760
Louis A. Weil, III 185,270,615 -- 5,298,777
Clay T. Whitehead 185,252,463 -- 5,316,929
(2) Change in Investment Objective 134,928,192 6,658,280 8,246,409
(3) Price Waterhouse LLP 181,428,241 2,959,247 6,181,904
</TABLE>
- --------------------------------------------------------------------------------
17
Comparing A $10,000 Investment. Prudential Utility
Fund, Inc.
Prudential Utility Fund, Inc. vs. the S&P 500 Index:
S&P 500 Index
Average Annual Total
Returns - Class A
(CHART) With Sales Load
CLASS A 11.0% Since Inception
11.4% for 5 Years
16.0% for 1 Year
Without Sales Load
11.8% Since Inception
12.6% for 5 Years
22.1% for 1 Year
Average Annual Total
Returns - Class B
With Sales Load
16.4% Since Inception
11.5% for 10 Years
(CHART) 11.6% for 5 Years
CLASS B 16.2% for 1 Year
Without Sales Load
16.4% Since Inception
11.5% for 10 Years
11.7% for 5 Years
21.2% for 1 Year
Average Annual Total
Returns - Class C
With Sales Load
15.5% Since Inception
(CHART) 20.2% for 1 Year
CLASS C Without Sales Load
15.5% Since Inception
21.2% for 1 Year
(CHART)
CLASS Z
Past performance is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than their original cost. The boxes on top of the graphs
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, Inc. (Class A,
Class B, Class C and Class Z) with a similar investment in the S&P 500 Index
by portraying the initial account values at the commencement of operations of
Class A, Class C and Class Z shares and for 10 years for Class B shares, and
subsequent account values at the end of this reporting period (December 31,
1996), as measured on a quarterly basis, beginning in 1990 for Class A shares,
in 1986 for Class B shares, in 1994 for Class C shares and in 1996 for Class Z
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, 1996; (c) all recurring fees
(including management fees) were deducted; and (d) all dividends and
distributions were reinvested. Class Z shares do not have a sales charge or
a distribution fee. Class Z shares have been in existence less than one year
and average annual total returns are not presented. 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 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 S&P 500 may differ substantially from the
securities in the Fund. The S&P 500 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
(LOGO)
Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Donald D. Lennox
Douglas H. McCorkindale
Mendel A. Melzer
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
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 LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
743911208 MF105E
743911109 Cat. #4444523
743911307
743911406
