(ICON)
Prudential
Utility
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
Prudential Utility Fund, Inc.
Performance At A Glance.
Powered by our foreign holdings and U.S.
electric utilities, the
Prudential Utility Fund once again beat the
average utility
fund, as measured by Lipper Analytical
Services. In addition, each
share class has performed well over longer
periods, beating the
Lipper average over the past five- and 10-year
periods and since inception.
<TABLE>
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 27.77% 110.09%
N/A 176.59%
Class B 26.80 102.31
313.36% 1218.51
Class C 26.80 N/A
N/A 79.71
Class Z 28.15 N/A
N/A 53.92
Lipper Utility Fund Avg3 26.01 87.48
274.21 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 12/31/97
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 21.38% 14.82%
N/A 12.94%
Class B 21.80 15.02
15.25% 17.04
Class C 25.80 N/A
N/A 18.72
Class Z 28.15 N/A
N/A 26.50
</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.
1 Source: Prudential Investments 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.
2 Inception dates: Class A: 1/22/90; Class B:
8/10/81;
Class C: 8/1/94; and Class Z: 3/1/96.
3 Lipper average returns are for 191 funds for
one year, 30
funds for five years, and eight funds for 10
years.
*** Lipper Since Inception returns are: Class
A, 158.03%; Class
B, 777.23%; Class C, 69.08%; and Class Z,
37.21%; for all funds
in each share class.
How Investments Compared.
(As of 12/31/97)
(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 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.
U.S. Taxable Money 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
interest rates. Foreign investments are
subject to additional
risks including currency, political and social
risks, and
potential illiquidity. There can be no
assurance that the
Fund will achieve its investment objective.
Strategy Session.
Unleashing Competition.
Historically, utilities have been treated as
natural monopolies.
Unfortunately, whether the supplier was the
government or a private
company, the lack of competition meant there
was little pressure for
reducing costs or improving service.
Competition has finally arrived.
Seeing it coming, we had bought both companies
that would win in a
competitive world and those whose prices had
been driven even below
fair value by unfavorable investor sentiment.
In 1997, this strategy
was successful.
Electrics. In 1997, several states developed
very reasonable plans to
move the industry into a competitive world. By
cutting utility rates
now and freezing them during a transition, the
states have preserved
the industry's high cash flow and allowed the
utilities to shrink
their balance sheets to prepare for
competition by paying down debt
and buying back stock. We are focusing on
companies whose managements have
been using this cash responsibly.
Natural gas. The natural gas industry has
essentially completed its
restructuring. Good companies are generating
strong profits and have
acquired management expertise about running
competitive utilities. This
makes them attractive takeover targets.
International. We continue to find attractive
opportunities overseas.
We have minimal exposure to Asia.
Our Style
The Prudential Utility Fund is a bit different
from other
utility funds. We look for total return --
both current income
and capital appreciation. We are diversified
broadly across
electric, telephone, natural gas, and
international utilities.
Portfolio Composition.
Sectors expressed as a percentage of
total net assets as of 12/31/97.
(PIE CHART)
<PAGE>
What Went Well.
Global Scope.
We had excellent returns on our investments in
Telefonos de
Mexico and the Brazilian company Telebras. We
still have a
fairly large foreign component in our
portfolio, but virtually
no Asian exposure. Most of our foreign stocks
are in Canada or
Europe. We are still looking aggressively for
overseas opportunities,
although our foreign exposure is less than it
was a year ago
(21% vs. 26%).
We took some profits on Telebras early in the
year and
sold our shares in Telecom Italia and ENDESA
(a Spanish
company), locking in 41% and 20% gains,
respectively, for
the portions of the year we held them. They
had done well
for us over the years and we sold at the right
time.
Deregulation Gains.
Edison International (up 42%) benefited from a
restructuring
agreement arrived at in 1996. In the fourth
quarter of this year,
our return received a strong assist from
several additional electric
utilities, which we had bought inexpensively
because they had
regulatory controversies outstanding. When
those issues were
resolved, the stocks rose very sharply in
response: Rochester
Gas & Electric (up 92% for the year), Eastern
Utilities Associates
(up 65%), New York State Electric & Gas (up
75%) and Unicom (up 21%).
And Not So Well.
Sorry, Wrong Number.
We could have done better if we had owned more
U.S. telephone
companies: They turned in 30% to 65% gains in
1997. Nonetheless,
we continue to be pessimistic about them. We
prefer to buy in an
industry where earnings already have survived
a first encounter
with a free market, such as natural gas, or
where the competition
won't be so fierce. The telephone companies
are trading at
historically high price to earnings ratios. We
think the risk
of the market reacting and even over-reacting
to competition-caused
earning disappointments is too great.
Blame It On El Nino.
In 1997, El Nino produced a warm winter, which
lowered demand
for natural gas and, in turn, weakened the
stock prices of
natural gas utilities.We believe the worst is
over for these stocks.
Five Largest Holdings.
3.7% Duke Energy Co.
Electric Power
3.5% Columbia Gas
System, Inc.
Gas Pipelines
3.5% Coastal Corp.
Gas Pipelines
3.4% Williams Cos., Inc.
Gas Pipelines
3.1% Sonat, Inc.
Oil & Gas
Expressed as a percentage of net assetsas of
12/31/97.
Looking Ahead.
After the highest three-year climb ever for
the S&P 500, the
stock market in general may be due for a rest,
and the performance of utilities compared to
other sectors
should improve. What's more, utilities' large
and reliable
dividend levels should be more attractive in
comparison.
1
<PAGE>
Where Are Utility Stocks Headed in 1998?
Fund Manager David A. Kiefer believes
utilities should do fairly well
in the months to come.
Q. Utility stocks shot up in the last two
months of 1997. What happened?
A. Funds flowed into utility stocks during the
fourth quarter, in part
as a reaction to market turmoil in Asia.
Investors looked for companies
with domestically-based earnings.
Q. Does that mean that utility stocks will
fall back?
A. Not necessarily. The dividend yield on
utility stocks is high
compared to other sectors. Utilities
traditionally have less
volatile earnings than companies in other
sectors. That means
that utility stocks are very attractive as a
defensive investment
in a volatile market. If the U.S. economy
slows, utilities could
look even better.
Q. Will the utility sector become more like
other sectors?
A. The utility sector always will have some
special qualities. It
will have some firms operating completely
regulated businesses
through a distribution infrastructure.
Moreover,
consumer demand for utility services tends to
vary less with
the business cycle than for other products and
services. But
it will be increasingly necessary to be
careful what stocks you
buy. Parts of the utility sector will become
more like other
sectors, but not completely like them.
Q. If we have an economic slowdown, will the
utility industry be
shielded from its effects?
A. Utilities provide essential services, and
consumer spending on
them doesn't vary much. It may still be the
best
sector to be in when the economy slows, but
once it is
restructured, it will be less buffered than it
is now. Our
experience focusing on total return will be an
advantage.
(PICTURE) David A. Kiefer
2
<PAGE>
President's Letter
February 2, 1998
Investing Smart.
Dear Shareholder:
This is the season when many investors receive
income tax refunds
or have a CD or two maturing. What will you do
with these assets?
Investing smart can be a challenge especially
given today's new
investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way
Americans invest and accumulate wealth, save
for college or
build a nest egg for retirement. While the law
offers opportunity,
it is also complex. You may need help to put
things in perspective.
Now may be an excellent time for you and your
Prudential Financial
Professional to update your investment
strategy and retirement plan.
A wise investor does so periodically. You
could find the tax law
opening doors that may benefit you now or over
the
long term, such as --
- -- Revised Capital Gains Tax Rates &
Exclusions. Long-term rates
are down. Is your portfolio positioned to
benefit? Also, new rules
allow you to keep more of the profit from the
sale of your home
(perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-
free distributions
and does not require mandatory withdrawals,
which should be of
particular interest to retirees seeking to
shelter assets in a
tax-free account.
- -- New Education IRAs. Similar to a
traditional IRA, but
specifically designed for higher education.
The new law also
creates credits and deductions to help defray
college costs.
- -- Expanded IRAs. Rules governing
traditional IRAs have been
extensively revised. Deductibility and
contribution limits have
been broadened as has the list for penalty-
free early withdrawals,
including first-time home buyers.
As you can see, what you don't know may cost
you! That's why I
recommend you call your Prudential Financial
Professional and get
a free investment plan checkup. Let us give
you the information and
tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
3
<PAGE>
Portfolio of Investments
as of December 31, 1997 PRUDENTIAL UTILITY
FUND, INC.
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
- ----------------------------------------------
- --------------
LONG-TERM INVESTMENTS--95.1%
COMMON STOCKS--92.1%
- ----------------------------------------------
- --------------
Electrical Power--40.3%
546,000 AES Corp. (a)
$ 25,457,250
1,045,400 Boston Edison Co.
39,594,525
981,300 Central Louisiana Electric
Company, Inc.
31,769,588
1,179,500 Central Maine Power Co.
17,987,375
2,432,685 CINergy Corporation
93,202,244
2,300,000 CMS Energy Corporation
101,343,750
948,202 Companhia Energetica de Minas
Gerais-Cemig (ADR) (Brazil)
41,131,106
1,000,000 DPL, Inc.
28,750,000
3,185,111 Duke Energy Co.
176,375,522
803,100 Eastern Utilities Associates
21,081,375
4,015,000 Edison International
109,157,812
83,540 El Paso Electric Co. (a)
610,886
1,282,900 Entergy Corp.
38,406,819
20,000 Evn Energie - Versorgung
Niederoesterreich AG (Austria)
2,642,219
3,050,000 FirstEnergy Corp.
88,450,000
6,000,000 Iberdrola (Spain)
78,960,317
2,798,500 Illinova Corp.
75,384,594
2,175,300 Long Island Lighting Co.
65,530,912
7,250,000 National Power PLC (United
Kingdom)
71,729,181
906,800 New Century Energies, Inc.
43,469,725
3,107,700 New York State Electric & Gas
Corp.
110,323,350
6,475,600 Niagara Mohawk Power Corp. (a)
67,993,800
967,000 NIPSCO Industries, Inc.
47,806,063
9,061,400 Northeast Utilities Co.
107,037,787
1,978,600 PECO Energy Co.
47,981,050
2,003,400 Pinnacle West Capital Corp.
84,894,075
2,557,000 Public Service Company of New
Mexico
60,568,938
1,670,800 Rochester Gas & Electric Corp.
56,807,200
1,928,367 Texas Utilities Co.
80,147,753
1,720,740 Tuscon Electric Power Co. (a)
31,188,413
2,511,800 Unicom Corp.
77,237,850
- ---------------
1,923,021,479
Gas Distribution--8.4%
283,650 Bay State Gas Co.
$ 10,530,506
3,938,104 British Gas PLC (ADR) (United
Kingdom)
89,345,734
500,000 Energen Corp.
19,875,000
783,600 MCN Corporation
31,637,850
810,600 NICOR Inc.
34,197,188
3,144,300 Pacific Enterprises
118,304,287
117,600 Providence Energy Corp.
2,565,150
1,880,400 Questar Corp.
83,912,850
205,400 Southwest Gas Corporation
3,838,413
161,150 Yankee Energy System, Inc.
4,300,691
- ---------------
398,507,669
- ----------------------------------------------
- --------------
Gas Pipelines--19.3%
2,709,275 Coastal Corp.
167,805,720
2,150,000 Columbia Gas System, Inc.
168,909,375
407,200 Consolidated Natural Gas Co.
24,635,600
237,700 Eastern Enterprises, Inc.
10,696,500
1,299,100 El Paso Natural Gas Co.
86,390,150
909,900 Enron Corp.
37,817,719
1,500,000 Equitable Resources, Inc.
53,062,500
690,300 KN Energy, Inc.
37,276,200
4,500,000 TransCanada Pipelines, Ltd.
(Canada)
100,451,349
2,200,000 Westcoast Energy, Inc. (Canada)
50,600,000
1,056,200 Western Gas Resources, Inc.
23,368,425
5,647,022 Williams Cos., Inc.
160,234,249
- ---------------
921,247,787
- ----------------------------------------------
- --------------
Manufacturing--1.5%
955,400 RWE AG (Germany)
51,264,200
36,350 Viag AG (Germany)
19,585,282
- ---------------
70,849,482
- ----------------------------------------------
- --------------
Media--0.2%
1,135,971 Ascent Entertainment Group, Inc.
(a)
11,785,699
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments
as of December 31, 1997 PRUDENTIAL UTILITY
FUND, INC.
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
- ----------------------------------------------
- --------------
Oil & Gas--3.7%
1,000,000 Alberta Energy Co., Ltd. (Canada)
$ 19,375,000
375,000 RAO Gazprom (ADR) (Russia)
9,046,875
3,248,800 Sonat, Inc.
148,632,600
- ---------------
177,054,475
- ----------------------------------------------
- --------------
Oil & Gas Exploration/Production--1.8%
4,906,830 EEX Corporation
44,468,147
700,000 Oryx Energy Co.(a)
17,850,000
814,800 Pioneer Natural Resources Co.
23,578,275
- ---------------
85,896,422
- ----------------------------------------------
- --------------
Realty Investment Trust--1.8%
89,580 Crescent Operating, Inc. (a)
2,194,710
895,800 Crescent Real Estate Equities,
Inc.
35,272,125
969,900 Equity Residential Property Trust
49,040,569
- ---------------
86,507,404
- ----------------------------------------------
- --------------
Telecommunications--15.1%
1,052,200 AT&T Corp.
64,447,250
1,939,600 BCE, Inc. (Canada)
64,612,925
2,414,000 Comsat Corp.
58,539,500
2,707,600 Frontier Corporation
65,151,625
3,200,000 Hellenic Telecommunication
Organization S.A. (GDR)
(Greece)
33,600,000
1,005,000 Millicom International Cellular S.
A. (Luxembourg) (a)
37,813,125
1,169,200 Southern New England
Telecommunications Corp.
58,825,375
1,000,000 Sprint Corp.
58,625,000
1,991,700 Tele Danmark (ADR) (Denmark)
61,369,256
371,400 Telebras (ADR) (Brazil)
43,244,887
800,000 Telefonica de Espana, S.A. (ADR)
(Spain)
72,850,000
1,441,500 Telefonica del Peru, S.A. (ADR)
(Peru)
33,604,969
1,211,500 Telefonos de Mexico, S.A. (ADR)
(Mexico)
67,919,719
11,000 U.S. West, Inc. (a)
496,375
- ---------------
721,100,006
- ---------------
Total common stocks
(cost $2,706,264,793)
4,395,970,423
- ---------------
PREFERRED STOCKS--1.6%
- ----------------------------------------------
- --------------
Natural Gas--0.2%
359,100 Enron Corp., 6.25%
$ 7,406,438
- ----------------------------------------------
- --------------
Telecommunications--1.4%
300,000 Compania de Inversiones,
Convertible, 7.00% (Argentina)
21,000,000
475,000 Nortel Inversora S. A.,
Convertible, 10.00% (Argentina)
30,132,812
398,000 Philippine Long Distance Telephone
Co. Convertible (GDR)
(The Philippines)
18,258,250
- ---------------
69,391,062
- ---------------
Total preferred stocks
(cost $64,270,654)
76,797,500
- ---------------
Principal
Amount
(000)
BONDS--1.4%
- ----------------------------------------------
- --------------
Electrical Power--0.3%
$ 10,000 Niagara Mohawk Power Corp.,
9.50%, 3/1/21
10,664,800
5,000 Texas Utilities Co.,
9.75%, 5/1/21
5,616,100
- ---------------
16,280,900
- ----------------------------------------------
- --------------
Natural Gas--0.1%
Oryx Energy Co.,
2,000 9.50%, 11/1/99
2,096,540
1,000 7.50%, 5/15/14
1,007,500
- ---------------
3,104,040
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
Portfolio of Investments as of December 31,
1997
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description
Value (Note 1)
<C> <S>
<C>
- ----------------------------------------------
- --------------
U.S. Government Obligations--1.0%
United States Treasury Bond,
$ 43,000 6.375%, 8/15/27
(cost $42,631,422)
$ 45,351,670
- ---------------
Total bonds
(cost $60,840,441)
64,736,610
- ---------------
Total long-term investments
(cost $2,831,375,888)
4,537,504,533
- ---------------
SHORT-TERM INVESTMENT--4.3%
- ----------------------------------------------
- --------------
Repurchase Agreement
202,675 Joint Repurchase Agreement
Account,
6.63%, 1/2/98
(cost $202,675,000; Note 5)
202,675,000
- ---------------
- ----------------------------------------------
- --------------
Total Investments--99.4%
(cost $3,034,050,888; Note 4)
4,740,179,533
Other assets in excess of
liabilities--0.6%
30,687,261
- ---------------
Net Assets--100%
$ 4,770,866,794
- ---------------
- ---------------
</TABLE>
- ---------------
(a) Non-income producing securities.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 6
<PAGE>
Statement of Assets and Liabilities
PRUDENTIAL UTILITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
<S>
<C>
Investments, at value (cost
$3,034,050,888)...............................
.............................. $
4,740,179,533
Foreign currency, at value (cost
$7,004,269)...................................
.........................
6,944,978
Cash..........................................
..............................................
............ 776,902
Receivable for investments
sold..........................................
...............................
14,718,524
Dividends and interest
receivable....................................
...................................
12,736,511
Receivable for Fund shares
sold..........................................
...............................
4,437,485
Prepaid
expenses......................................
..............................................
.... 98,423
- -----------------
Total
assets........................................
..............................................
... 4,779,892,356
- -----------------
Liabilities
Payable for Fund shares
reacquired....................................
..................................
3,739,079
Distribution fee
payable.......................................
.........................................
2,292,111
Management fee
payable.......................................
...........................................
1,554,461
Accrued
expenses......................................
..............................................
.... 955,213
Foreign withholding taxes
payable.......................................
................................
484,698
- -----------------
Total
liabilities...................................
..............................................
... 9,025,562
- -----------------
Net
Assets........................................
..............................................
........ $ 4,770,866,794
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par...........................................
...................................... $
3,869,715
Paid-in capital in excess of
par...........................................
..........................
2,991,500,986
- -----------------
2,995,370,701
Undistributed net investment
income........................................
..........................
9,335,543
Accumulated net realized gain on
investments...................................
...................... 60,175,598
Net unrealized appreciation on investments
and foreign
currencies....................................
1,705,984,952
- -----------------
Net assets, December 31,
1997..........................................
................................. $
4,770,866,794
- -----------------
- -----------------
Class A:
Net asset value and redemption price per
share
($2,583,300,630 / 209,469,446 shares of
common stock issued and
outstanding)......................
$12.33
Maximum sales charge (5% of offering
price)........................................
.................. .65
- -----------------
Maximum offering price to
public........................................
.............................
$12.98
- -----------------
- -----------------
Class B:
Net asset value, offering price and
redemption price per share
($2,132,172,708 / 173,010,831 shares of
common stock issued and
outstanding)......................
$12.32
- -----------------
- -----------------
Class C:
Net asset value, offering price and
redemption price per share
($13,489,733 / 1,094,600 shares of
common stock issued and
outstanding)...........................
$12.32
- -----------------
- -----------------
Class Z:
Net asset value, offering price and
redemption price per share
($41,903,723 / 3,396,606 shares of
common stock issued and
outstanding)...........................
$12.34
- -----------------
- -----------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
Statement of Operations
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income
December 31, 1997
<S>
<C>
Income
Dividends (net of foreign withholding
taxes of $4,598,306)............... $
147,106,502
Interest..............................
15,238,562
--
- ---------------
Total income.......................
162,345,064
--
- ---------------
Expenses
Distribution fee--Class A.............
5,503,617
Distribution fee--Class B.............
20,593,729
Distribution fee--Class C.............
94,238
Management fee........................
17,370,271
Transfer agent's fees and expenses....
5,600,000
Custodian's fees and expenses.........
579,000
Reports to shareholders...............
490,000
Registration fees.....................
110,000
Insurance.............................
99,000
Legal fees and expenses...............
45,000
Directors' fees and expenses..........
45,000
Audit fee.............................
32,000
Miscellaneous.........................
28,338
--
- ---------------
Total expenses.....................
50,590,193
--
- ---------------
Net investment income....................
111,754,871
--
- ---------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions...............
413,513,785
Foreign currency transactions.........
(764,114)
--
- ---------------
412,749,671
--
- ---------------
Net change in unrealized appreciation
(depreciation) on:
Investments...........................
540,067,336
Foreign currencies....................
(224,426)
--
- ---------------
539,842,910
--
- ---------------
Net gain on investments and foreign
currencies............................
952,592,581
--
- ---------------
Net Increase in Net Assets
Resulting from Operations................ $
1,064,347,452
--
- ---------------
--
- ---------------
</TABLE>
PRUDENTIAL UTILITY FUND, INC.
Statement of Changes in Net Assets
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Increase (Decrease) Year
Ended December 31,
in Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment income...... $ 111,754,871
$ 107,830,613
Net realized gain on
investments and foreign
currencies.............. 412,749,671
320,235,886
Net change in unrealized
appreciation of
investments and foreign
currencies.............. 539,842,910
357,572,748
--------------
- -----------------
Net increase in net assets
resulting from
operations.............. 1,064,347,452
785,639,247
--------------
- -----------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................
(60,645,408) (56,517,524)
Class B.................
(40,354,565) (49,728,071)
Class C.................
(200,787) (110,317)
Class Z.................
(1,038,271) (1,061,722)
--------------
- -----------------
(102,239,031) (107,417,634)
--------------
- -----------------
Distributions from net
realized capital gains
Class A.................
(211,158,424) (136,028,661)
Class B.................
(182,907,714) (151,218,004)
Class C.................
(998,463) (377,943)
Class Z.................
(3,229,427) (2,368,426)
--------------
- -----------------
(398,294,028) (289,993,034)
--------------
- -----------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares
sold.................... 413,071,389
334,072,755
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 459,144,179
363,055,255
Cost of shares
reacquired..............
(865,755,515) (952,090,398)
--------------
- -----------------
Net increase (decrease) in
net assets from Fund
share transactions...... 6,460,053
(254,962,388)
--------------
- -----------------
Total increase................ 570,274,446
133,266,191
Net Assets
Beginning of year............. 4,200,592,348
4,067,326,157
--------------
- -----------------
End of year................... $4,770,866,794
$ 4,200,592,348
--------------
- -----------------
--------------
- -----------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 8
<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 gains or losses on foreign
currency transactions represent net
foreign exchange gains or 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
(other than investments) at year
end exchange rates are reflected as a
component of unrealized appreciation or
depreciation on investments and 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 capital loss carryforwards.
Dividends and distributions are
recorded on the ex-dividend date.
- ----------------------------------------------
- ----------------------------------
9
<PAGE>
Notes to Financial Statements
PRUDENTIAL UTILITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
Income distributions and capital gain
distributions are determined in accordance
with income tax regulations which may differ
from generally accepted accounting
principles.
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 $738,273
and increase accumulated net realized gain on
investments by $738,273 for
realized foreign currency losses during the
year ended December 31, 1997. 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 Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM
has responsibility for all
investment advisory services and supervises
the subadviser's performance of such
services. Pursuant to a subadvisory agreement
between PIFM and The Prudential
Investment Corporation ('PIC'), PIC furnishes
investment advisory services in
connection with the management of the Fund.
PIFM 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 PIFM 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 PSI. The distribution fees for
Class A, B and C shares are accrued
daily and payable monthly. PSI also incurs the
expenses of distributing the
Fund's Class Z shares under the distribution
agreement, none of which is
reimbursed or paid by the Fund.
Pursuant to the Class A, B and C Plans, the
Fund compensates PSI 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, 1997.
PSI has advised the Fund that it has received
approximately $745,100 in
front-end sales charges resulting from sales
of Class A shares during the year
ended December 31, 1997. 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, 1997, it received
approximately $2,226,900 and $2,800 in
contingent deferred sales charges imposed
upon redemptions by certain Class B and Class
C shareholders, respectively.
PSI, PIFM 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'), has a credit agreement (the
'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. 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 did not borrow any amounts pursuant to
the Agreement during the year ended
December 31, 1997. 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. The Agreement expired on
December 30, 1997 and has been extended
through December 29, 1998 under the same
terms.
- ----------------------------------------------
- --------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'),
a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During
the year ended December 31, 1997,
the Fund incurred fees of approximately
$4,378,000
- ----------------------------------------------
- ----------------------------------
10
<PAGE>
Notes to Financial Statements
PRUDENTIAL UTILITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
for the services of PMFS. As of December 31,
1997, approximately $357,000 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 nonaffiliates.
For the year ended December 31, 1997, PSI
earned approximately $78,400 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, 1997, were
$638,350,290 and $1,119,864,954,
respectively.
The federal income tax basis of the Fund's
investments at December 31, 1997 was
$3,039,463,185 and, accordingly, net
unrealized appreciation for federal income
tax purposes was $1,700,716,348 (gross
unrealized appreciation--$1,726,387,997;
gross unrealized depreciation--$25,671,649).
The Fund elected to treat approximately
$302,200 of net currency losses incurred
during the two month period ended December 31,
1997 as having incurred in the
following 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, 1997, the
Fund had a 17.21% undivided interest in the
joint account. The undivided
interest for the Fund represents $202,675,000
in the principal amount. As of
such date, each repurchase agreement in the
joint account and the collateral
therefor were as follows:
Credit Suisse First Boston Corp., 6.75%, in
the principal amount of
$342,000,000, repurchase price $342,128,250,
due 1/2/98. The value of the
collateral including accrued interest was
$353,486,750.
Deutsche Morgan Grenfell, 6.80%, in the
principal amount of $200,000,000,
repurchase price $200,075,555, due 1/2/98. The
value of the collateral including
accrued interest was $204,000,314.
SBC Warburg Dillon Read, Inc., 6.55%, in the
principal amount of $142,000,000,
repurchase price $142,051,672, due 1/2/98. The
value of the collateral including
accrued interest was $144,862,841.
Morgan Stanley, Dean Witter, Discover & Co.,
5.95%, in the principal amount of
$151,553,000, repurchase price $151,603,097,
due 1/2/98. The value of the
collateral including accrued interest was
$154,584,932.
Salomon Smith Barney Inc., 6.75%, in the
principal amount of $342,000,000,
repurchase price $342,128,250, due 1/2/98. The
value of the collateral including
accrued interest was $350,295,372.
- ----------------------------------------------
- --------------
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. 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, 1997:
Shares sold..................... 18,710,671
$ 214,780,201
Shares issued in reinvestment of
dividends and distributions... 21,742,349
248,368,140
Shares reacquired...............
(41,618,692) (478,448,444)
------------
- ---------------
Net decrease in shares
outstanding before
conversion....................
(1,165,672) (15,300,103)
Shares issued upon conversion
from Class B.................. 24,639,335
284,415,438
------------
- ---------------
Net increase in shares
outstanding................... 23,473,663
$ 269,115,335
------------
- ---------------
------------
- ---------------
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 B Shares
Amount
- -------------------------------- ------------
- ---------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold..................... 14,991,815
$ 170,422,061
Shares issued in reinvestment of
dividends and distributions... 18,013,110
205,416,554
Shares reacquired...............
(31,804,005) (362,886,857)
------------
- ---------------
Net increase in shares
outstanding before
conversion.................... 1,200,920
12,951,758
Shares reacquired upon
conversion into Class A.......
(24,674,366) (284,415,438)
------------
- ---------------
Net decrease in shares
outstanding...................
(23,473,446) $ (271,463,680)
------------
- ---------------
------------
- ---------------
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) (154,796,253)
Shares reacquired upon
conversion into Class A.......
(26,471,144) (269,740,107)
------------
- ---------------
Net decrease in shares
outstanding...................
(42,148,306) $ (424,536,360)
------------
- ---------------
------------
- ---------------
<CAPTION>
Class C
- --------------------------------
Year ended December 31, 1997:
Shares sold..................... 1,039,426
$ 12,054,619
Shares issued in reinvestment of
dividends and distributions... 95,416
1,091,801
Shares reacquired...............
(591,977) (6,968,862)
------------
- ---------------
Net increase in shares
outstanding................... 542,865
$ 6,177,558
------------
- ---------------
------------
- ---------------
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
------------
- ---------------
------------
- ---------------
<CAPTION>
Class Z Shares
Amount
- -------------------------------- ------------
- ---------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold..................... 1,379,164
$ 15,814,508
Shares issued in reinvestment of
dividends and distributions... 374,266
4,267,684
Shares reacquired...............
(1,523,099) (17,451,352)
------------
- ---------------
Net increase in shares
outstanding................... 230,331
$ 2,630,840
------------
- ---------------
------------
- ---------------
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
- ----------------------------------------------
- --------
Year Ended December 31,
- ----------------------------------------------
- --------
1997(b) 1996(b) 1995 1994
1993
- -------- -------- ------ ------
- ------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year....................................
$10.88 $ 9.87 $ 8.27 $ 9.72
$ 8.97
- -------- -------- ------ ------
- ------
Income from investment operations
Net investment
income........................................
......... .34 .32 .30
.31 .33
Net realized and unrealized gains (losses) on
investment and foreign
currency
transactions..................................
............ 2.53 1.80
1.79 (1.06) 1.12
- -------- -------- ------ ------
- ------
Total from investment
operations...................................
2.87 2.12 2.09 (.75)
1.45
- -------- -------- ------ ------
- ------
Less distributions
Dividends from net investment
income..................................
(.32) (.32) (.30) (.32)
(.29)
Distributions from net realized
gains.................................
(1.10) (.79) (.19) (.36)
(.41)
Distributions in excess of net realized
gains......................... --
- -- -- (.02) --
- -------- -------- ------ ------
- ------
Total
distributions.................................
............... (1.42) (1.11)
(.49) (.70) (.70)
- -------- -------- ------ ------
- ------
Net asset value, end of
year..........................................
$12.33 $10.88 $ 9.87 $ 8.27
$ 9.72
- -------- -------- ------ ------
- ------
- -------- -------- ------ ------
- ------
TOTAL
RETURN(a).....................................
.................. 27.77% 22.09%
25.74% (7.89)% 16.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000,000).....................................
$2,583 $2,023 $1,709 $254
$337
Average net assets
(000,000).....................................
..... $2,201 $1,786 $1,440
$294 $287
Ratios to average net assets:
Expenses, including distribution
fees.............................. .82%
.86% .88% .88% .80%
Expenses, excluding distribution
fees.............................. .57%
.61% .63% .63% .60%
Net investment
income........................................
...... 2.95% 3.10% 3.12%
3.37% 3.16%
For Class A, B, C and Z shares:
Portfolio turnover
rate..........................................
.. 15% 17% 14%
15% 24%
Average commission rate paid per
share............................. $.0301
$.0332 $.0302 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>
Financial Highlights
PRUDENTIAL UTILITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class B
- ----------------------------------------------
- --------
Year Ended December 31,
- ----------------------------------------------
- --------
1997(b) 1996(b) 1995 1994
1993
- -------- -------- ------ ------
- ------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year....................................
$10.88 $ 9.87 $ 8.26 $ 9.69
$ 8.96
- -------- -------- ------ ------
- ------
Income from investment operations
Net investment
income........................................
......... .25 .24 .22
.24 .24
Net realized and unrealized gains (losses) on
investment and foreign
currency
transactions..................................
............ 2.53 1.80
1.80 (1.05) 1.12
- -------- -------- ------ ------
- ------
Total from investment
operations...................................
2.78 2.04 2.02 (.81)
1.36
- -------- -------- ------ ------
- ------
Less distributions
Dividends from net investment
income..................................
(.24) (.24) (.22) (.24)
(.22)
Distributions from net realized
gains.................................
(1.10) (.79) (.19) (.36)
(.41)
Distributions in excess of net realized
gains......................... --
- -- -- (.02) --
- -------- -------- ------ ------
- ------
Total
distributions.................................
............... (1.34) (1.03)
(.41) (.62) (.63)
- -------- -------- ------ ------
- ------
Net asset value, end of
year..........................................
$12.32 $10.88 $ 9.87 $ 8.26
$ 9.69
- -------- -------- ------ ------
- ------
- -------- -------- ------ ------
- ------
TOTAL
RETURN(a).....................................
.................. 26.80% 21.16%
24.80% (8.51)% 15.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000,000).....................................
$2,132 $2,137 $2,355 $3,526
$4,756
Average net assets
(000,000).....................................
..... $2,059 $2,184 $2,450
$4,152 $4,308
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.57%
1.61% 1.63% 1.63% 1.60%
Expenses, excluding distribution
fees.............................. .57%
.61% .63% .63% .60%
Net investment
income........................................
...... 2.20% 2.35% 2.37%
2.62% 2.36%
</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. 14
<PAGE>
Financial Highlights
PRUDENTIAL UTILITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class C
- ----------------------------------------------
- ---
August 1,
1994(d)
Year Ended December 31, Through
- -------------------------------- December
31,
1997(b) 1996(b) 1995 1994
- -------- -------- ------ ---------
- ---
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.................................. $
10.88 $ 9.87 $ 8.26 $ 9.30
- -------- -------- ------ ---------
- ---
Income from investment operations
Net investment
income........................................
......... .25 .24 .22
.11
Net realized and unrealized gains (losses) on
investment and foreign
currency
transactions..................................
............ 2.53 1.80
1.80 (.69)
- -------- -------- ------ ---------
- ---
Total from investment
operations...................................
2.78 2.04 2.02 (.58)
- -------- -------- ------ ---------
- ---
Less distributions
Dividends from net investment
income..................................
(.24) (.24) (.22)
(.13)
Distributions from net realized
gains.................................
(1.10) (.79) (.19)
(.31)
Distributions in excess of net realized
gains......................... --
- -- -- (.02)
- -------- -------- ------ ---------
- ---
Total
distributions.................................
............... (1.34) (1.03)
(.41) (.46)
- -------- -------- ------ ---------
- ---
Net asset value, end of
period........................................
$ 12.32 $10.88 $ 9.87 $
8.26
- -------- -------- ------ ---------
- ---
- -------- -------- ------ ---------
- ---
TOTAL
RETURN(a).....................................
.................. 26.80 % 21.16%
24.80% (6.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................
$13,490 $6,001 $3,455
$787
Average net assets
(000).........................................
..... $9,424 $4,517 $2,181
$433
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.57
% 1.61% 1.63% 1.70%(c)
Expenses, excluding distribution
fees.............................. .57
% .61% .63% .70%(c)
Net investment
income........................................
...... 2.20 % 2.35% 2.37%
2.65%(c)
<CAPTION>
Class Z
- -----------------------------
March 1,
1996(e)
Year Ended Through
December 31, December 31,
1997(b) 1996(b)
- ------------ ------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period..................................
$10.88 $ 10.05
- ----- ------------
Income from investment operations
Net investment
income........................................
......... .36 .29
Net realized and unrealized gains (losses) on
investment and foreign
currency
transactions..................................
............ 2.54 1.67
- ----- ------------
Total from investment
operations...................................
2.90 1.96
- ----- ------------
Less distributions
Dividends from net investment
income..................................
(.34) (.34)
Distributions from net realized
gains.................................
(1.10) (.79)
Distributions in excess of net realized
gains......................... --
- --
- ----- ------------
Total
distributions.................................
............... (1.44) (1.13)
- ----- ------------
Net asset value, end of
period........................................
$12.34 $ 10.88
- ----- ------------
- ----- ------------
TOTAL
RETURN(a).....................................
.................. 28.15%
20.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................
$41,904 $34,446
Average net assets
(000).........................................
..... $35,994 $34,291
Ratios to average net assets:
Expenses, including distribution
fees.............................. .57%
.61%(c)
Expenses, excluding distribution
fees.............................. .57%
.61%(c)
Net investment
income........................................
...... 3.20% 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 period.
(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>
Report of Independent Accountants
PRUDENTIAL UTILITY FUND 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, 1997, the results of
its operations for the year then
ended, the changes in its net assets for each
of the two years in the period
then ended and the financial highlights for
each of the periods indicated, in
conformity with generally accepted accounting
principles. These financial
statements and financial highlights (hereafter
referred to as 'financial
statements') are the responsibility of the
Fund's management; our responsibility
is to express an opinion on these financial
statements based on our audits. We
conducted our audits of these financial
statements in accordance with generally
accepted auditing standards which require that
we plan and perform the audit to
obtain reasonable assurance about whether the
financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements, assessing
the accounting principles used and significant
estimates made by management, and
evaluating the overall financial statement
presentation. We believe that our
audits, which included confirmation of
securities at December 31, 1997 by
correspondence with the custodian and brokers
and the application of alternative
auditing procedures where confirmation from
brokers were not received, provide a
reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
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, 1997) as
to the federal tax status of
dividends paid by the Fund during its fiscal
year ended December 31, 1997.
During 1997, the Fund paid dividends of $1.418
per Class A share, $1.338 per
Class B share and $1.338 per Class C share and
$1.443 per Class Z share. Of
these amounts, $0.967 per Class A, B, C and Z
shares represent distributions
from long-term capital gains of which $0.367
is taxable at 28% rate gain and
$0.600 is taxable at 20% rate gain. The
remaining $0.451 per Class A share,
$0.371 per Class B share, $0.371 per Class C
share and $0.476 per Class Z share
represent dividends from ordinary income (net
investment income and short-term
capital gains). Further, we wish to advise you
that 60% of the ordinary income
dividends paid in 1997 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>
Comparing A $10,000 Investment.
- -----------------------------------------
Prudential Utility Fund, Inc. vs. the
S&P 500 Index:
- ---Prudential Utility Fund, Inc.
//S&P 500 Index
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 or 10 years,
whichever is shorter.
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, 1997), as measured on
a quarterly basis, beginning in 1990 for Class
A shares, in 1987
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, 1997;
(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 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.
Class A (GRAPH)
Average Annual Total
Returns - Class A
- ----------------------
With Sales Load
12.94% Since Inception
14.82% for 5 Years
21.38% for 1 Year
Without Sales Load
13.67% Since Inception
16.01% for 5 Years
27.77% for 1 Year
Class B (GRAPH)
Average Annual Total
Returns - Class B
- ----------------------
With Sales Load
17.04% Since Inception
15.25% for 10 Years
15.02% for 5 Years
21.80% for 1 Year
Without Sales Load
17.04% Since Inception
15.25% for 10 Years
15.14% for 5 Years
26.80% for 1 Year
Class C (GRAPH)
Average Annual Total
Returns - Class C
- ----------------------
With Sales Load
18.72% Since Inception
25.80% for 1 Year
Without Sales Load
18.72% Since Inception
26.80% for 1 Year
Class Z (GRAPH)
Average Annual Total
Returns - Class Z
- ----------------------
Without Sales Load
26.50% Since Inception
28.15% for 1 Year
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852http://www.prudential.com
Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
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
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
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 Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
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
