(ICON)
Prudential
Utility
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1998
(LOGO)
<PAGE>
Prudential Utility Fund, Inc.
Performance At A Glance.
The Prudential Utility Fund had a substantially positive
return in 1998,
but trailed the average Lipper Utility Fund because our
natural gas
utility stocks suffered from very weak winter demand in the
wake of
El Nino. We also owned less of the high-flying U.S.
telecommunications
stocks than our peers did. We remain very bullish on the gas
utility
stocks because their earnings growth in 1999 should be
comparable to
that of telecommunications companies, yet their shares cost
much
less per dollar of company earnings.
<TABLE>
Cumulative Total Returns1 As of
12/31/98
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 7.98% 95.09% N/A
198.66%
Class B 7.18 88.00 260.91%
1,313.15
Class C 7.18 N/A N/A
92.61
Class Z 8.24 N/A N/A
66.60
Lipper Utility Fund Avg.3 18.30 88.12 282.16
***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
12/31/98
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 2.58% 13.14% N/A 12.37%
Class B 2.18 13.34 13.70% 16.45
Class C 5.11 N/A N/A 15.74
Class Z 8.24 N/A N/A 19.74
</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,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Fund charges a maximum front-end sales
load of
5% for Class A shares. Class B shares are subject to a
declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%,
1%, and
1% for six years. Class B shares will automatically convert
to
Class A shares, on a quarterly basis, approximately seven
years
after purchase. Class C shares are subject to a front-end
sales
load of 1% and a CDSC of 1% for 18 months. Class C shares
bought
before November 2, 1998 have a 1% CDSC if sold within one
year.
Class Z shares are not subject to a sales charge or
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 all funds in each share
class for
the one-, five-, and ten-year periods in the Utility Fund
category.
***Lipper Since Inception returns are 207.79% for Class A;
843.65%
for Class B; 101.85% for Class C; and 60.87% for Class Z
based on
all funds in each share class.
How Investments Compared.
(As of 12/31/98)
(GRAPH)
Source: Lipper, Inc. 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
United
States 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
illiquidity.
There can be no assurance that the Fund's investment
objective of
total return will be achieved.
Buy Low.
How do you assess the investment value of our gas and
electric
stocks? The most familiar measure is the price to earnings
ratio
(P/E) -- the cost to an investor of a dollar of company
earnings.
An unprecedented four years of price gains above 20% drove
the P/E
for the S&P 500 to 33 times 1998 earnings, very expensive
when
compared with a historical average of 14. Our natural gas
stocks
are about 30% cheaper. Electric utilities -- now selling at
a 47%
discount -- historically have been good buys when the
discount
rises above 35%.
Strategy Session.
Who Can Handle
Competition?
Despite initial fears that the U.S. gas and electric
industries could
not handle competitive pressures, the transition to
deregulated
markets is turning out to present many good investment
opportunities.
As a result of favorable regulatory treatment, electric
companies
are generating substantial cash flow, while deregulation has
created
great opportunities for earnings growth for gas utilities.
Moreover,
because these sectors did not participate in the year-end
market
euphoria, they are very attractively priced compared with
other
stocks. There are exceptions -- companies whose prices have
risen
to somewhat expensive levels. We are taking our profits
there, and
in some international stocks, and redeploying the profits in
some
more attractively priced telephone companies.
We have been generally cautious about the telephone
industry. We
expect an extremely competitive situation to develop, as
long-distance, wireless, cable, and local telephone
companies
move into one another's markets. We prefer to wait until the
general outline of the future competitive landscape becomes
clearer. Nonetheless, there are some opportunities in
companies
that are undervalued in the market because of short-term
difficulties. We are reinvesting the gains we realize on
appreciated gas, electric, and international stocks
selectively
in the telephone sector.
Portfolio Composition.
Expressed as a percentage of
total net assets as of 12/31/98.
(PIE CHART)
<PAGE>
What Went Well.
U.S. Electric Utilities Shine. Our U.S. electric utilities -
- - by far
our largest focus -- performed very well. Peco Energy's 78%
return
paced the group, but we also saw returns above 50% for the
year
from Energy East and Niagara Mohawk. These are well-managed
companies that are benefiting from the restructuring of the
electric industry.
Several of our international holdings moved up sharply in
the
autumn European rally. We took our profits on Tele Danmark
and
Telefonica de Espana. Prices of European utility stocks have
gotten very high in the general market euphoria about
monetary
union, so we are finding better investment opportunities in
the United States.
And Not So Well.
Winter Too Warm. Our natural gas pipelines -- including
Sonat,
TransCanada, and KN Energy -- had a poor year because the
mild
El Nino winter in North America reduced demand for heating
gas.
The forecast for the 1998-1999 winter is for temperatures to
return to long-term averages, but our positive outlook for
these stocks is based on their longer-term prospects.
Our return also suffered because we had resisted the general
enthusiasm for telecommunications stocks, believing that
they are overpriced and poorly prepared for the intensely
competitive environment ahead.
Five Largest
Holdings.
3.9% Coastal Corp.
Gas Pipelines
3.7% Williams Companies, Inc.
Gas Pipelines
3.6% Columbia Energy Corp.
Gas Pipelines
2.9% Energy East Corp.
Electrical Power
2.7% Northeast Utilities Co.
Electrical Power
Expressed as a percentage of net assetsas of 12/31/98.
Looking Ahead.
Excellent Values. Stock prices are exceptionally high today.
Whereas
shares historically have sold for about 14 times annual
earnings,
the S&P 500 Index is more than 30 times 1998 earnings.
However,
stock performance over the past year had unprecedentedly
wide
divergences, producing extreme pricing differences. While
some
technology firms are priced as if they could increase their
earnings by 25% or more a year indefinitely, gas and
electric
companies are bargain priced. We think they represent
exceptional
value, particularly when their relative insensitivity to an
economic slowdown is taken into consideration.
1
<PAGE>
Portfolio Manager David Kiefer discusses his investment
style.
Q. How would you characterize your investment style?
A. I'm a value investor. I like to have a clear view of a
company's earnings prospects, and I prefer to buy companies
that have been undervalued by other investors. For example,
when the electric industry faced deregulation, there was a
threat that hostile regulators could require the companies
to
pay for the sunk costs of surplus generating capacity. (The
companies had built these plants because their regulators
placed a very high value on the security of a redundant
energy supply.) We thought we could identify electric
companies that were in strong positions and we bought
them at depressed prices. As deregulation has been playing
out, we have been reaping the benefits.
Natural gas companies went through the transition to
competition
first. As electric and natural gas markets converge, these
companies are particularly well-positioned to increase their
earnings faster by taking advantage of new investment
opportunities.
Merger and acquisition activity in the gas and electric
industries
also increases the potential for price appreciation of the
companies
in our portfolio.
Q. What about the telecommunications industry?
A. Much as with Internet stocks in the broader market,
investors see
a rapidly developing industry and many have been willing to
pay
high prices to get in on the ground floor even though they
don't
have a clear view of the ultimate strategic landscape. Not
every
company in the sector can emerge a winner, and unexpected
events
can transform the playing field.
For example, in 1998, AT&T guaranteed that it would have
high-capacity
connections all the way to the household through the two
largest
cable companies in the United States, and it recently
introduced
a unified wireless/wired telephone service plan. AT&T's
efforts,
and those of many others, create significant risks to the
earnings
growth of the local telephone companies. The
telecommunications
world looks different from a year ago. In this instability,
we
are unwilling to pay high prices for an uncertain future. We
are
buying opportunistically: when we see companies selling --
for
whatever reason -- below what we believe their earnings
prospects
justify, we will buy. But we believe it is too soon to make
large
commitments on the final structure of the industry.
2
<PAGE>
President's Letter February 16,
1999
(PICTURE)
Dear Shareholder:
Many major equity market indexes ended 1998 on the upswing -
- - posting
an unprecedented fourth consecutive year of double-digit
returns --
as many stocks rebounded off their early October lows. Bond
investors
were also cheered by healthy returns on U.S. Treasuries and
investment-grade corporate debt, as well as certain Western
European bonds.
Unfortunately, the equity market's advance was neither broad
nor deep. It was limited primarily to stocks of larger
companies
with established records of growth. Investors ignored the
stocks
of both undervalued companies and smaller companies in a
"flight
to quality" stemming from financial turmoil in Asia and
fears of
a recession in the United States. Accordingly, growth-style
investors in large-company stocks outperformed value-style
investors by the widest margins in nearly 24 years -- and
not
since the Great Depression have large-company stocks so
outperformed stocks of small companies.
The rally in bonds was not universal either. While
government
bonds -- especially Treasuries -- enjoyed strong appeal,
investors
were cool toward lower-rated issues. High yield bonds,
therefore,
saw yields rise while prices fell.
What We Can Learn From '98
The volatility of 1998 underscores points all investors
should
keep in mind: Financial markets will rise and fall,
sometimes
dramatically. Because asset classes seldom move in lockstep,
owning a mix of value- and growth-oriented mutual funds in
addition to bond and money market funds can help lessen the
effects of market volatility.
Generally speaking, long-term success in investment
management
comes from remaining true to an investment discipline --
even
when it is out of favor. Investors who maintain a long-term
perspective and don't sell during market lows are more
likely
to regain lost ground, and while past events cannot foretell
future performance, stocks and bonds have produced
attractive
returns ahead of inflation over time.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
Brian M. Storms
President
3
<PAGE>
Portfolio of Investments as of December 31, 1998
PRUDENTIAL
UTILITY FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--98.0%
COMMON STOCKS--95.1%
- ------------------------------------------------------------
Commercial Services
89,580 Crescent Operating, Inc.(a) $
425,505
- ------------------------------------------------------------
Electrical Power--47.8%
546,000 AES Corp.(a)
25,866,750
700,000 American Electric Power Company,
Inc.
32,943,753
1,045,400 BEC Energy
43,057,412
1,100,000 BNDES Participacoes SA BNDESP
(ADR) (Brazil)
22,550,000
2,632,685 CINergy Corp.
90,498,547
981,300 Cleco Corp.
33,670,856
1,179,500 CMP Group Inc.
22,263,062
2,500,000 CMS Energy Corp.
121,093,750
487,000 Commonwealth Energy System
19,723,500
1,160,381 Companhia Energetica de Minas
Gerais-Cemig (ADR) (Brazil)
22,076,249
3,000,000 DPL, Inc.
64,875,000
1,285,111 Duke Energy Co.
82,327,423
903,100 Eastern Utilities Associates
25,512,575
3,435,000 Edison International
95,750,625
83,540 El Paso Electric Co.(a)
730,975
2,497,700 Energy East Corp.
141,120,050
3,325,000 FirstEnergy Corp.
108,270,312
3,000,000 Iberdrola (Spain)
56,117,236
3,598,500 Illinova Corp.
89,962,500
7,523,805 National Power PLC (United
Kingdom)
64,778,613
800,000 Nevada Power Co.
20,800,000
906,800 New Century Energies, Inc.
44,206,500
6,475,600 Niagara Mohawk Power Corp.(a)
104,419,050
1,934,000 NIPSCO Industries, Inc.
58,866,125
8,161,400 Northeast Utilities Co.
130,582,400
3,700,000 PacifiCorp
77,931,250
1,978,600 PECO Energy Co.
82,359,225
2,003,400 Pinnacle West Capital Corp.
84,894,075
2,557,000 Public Service Company of New
Mexico
52,258,688
1,470,800 Rochester Gas & Electric Corp.
45,962,500
1,005,400 RWE AG (Germany)
55,080,902
3,548,366 Sempra Energy
90,039,787
500,000 Sierra Pacific Resources
19,000,000
973,200 Teco Energy Inc.
27,432,075
1,778,367 Texas Utilities Co.
83,027,509
2,511,800 Unicom Corp. $
96,861,288
1,770,740 Unisource Energy Corp.
23,904,990
62,350 Viag AG (Germany)
36,572,976
-----------
- ----
2,297,388,528
- ------------------------------------------------------------
Gas Distribution--7.0%
283,650 Bay State Gas Co.
11,292,816
3,938,104 British Gas PLC (ADR) (United
Kingdom)
128,726,774
237,700 Eastern Enterprises, Inc.
10,399,375
700,600 Energen Corp.
13,661,700
2,211,792 Keyspan Energy
68,565,552
2,383,600 MCN Corp.
45,437,375
810,600 NICOR, Inc.
34,247,850
117,600 Providence Energy Corp.
2,469,600
205,400 Southwest Gas Corp.
5,520,125
303,600 Washington Gas Light Co.
8,235,150
276,650 Yankee Energy System, Inc.
8,057,431
-----------
- ----
336,613,748
- ------------------------------------------------------------
Gas Pipelines--24.3%
5,418,550 Coastal Corp.
189,310,591
3,025,000 Columbia Energy Group
174,693,750
807,200 Consolidated Natural Gas Co.
43,588,800
2,698,200 El Paso Energy Corp.
93,931,087
909,900 Enron Corp.
51,921,169
2,061,800 Equitable Resources, Inc.
60,049,925
1,740,300 KN Energy, Inc.
63,303,412
4,360,800 Questar Corp.
84,490,500
375,000 RAO Gazprom (ADR) (Russia)
3,178,125
3,636,300 Sonat, Inc.
98,407,369
5,400,000 TransCanada Pipelines, Ltd.
(Canada)
77,753,462
2,200,000 Westcoast Energy, Inc. (Canada)
43,725,000
1,475,900 Western Gas Resources, Inc.
8,486,425
5,647,022 Williams Companies, Inc.
176,116,499
-----------
- ----
1,168,956,114
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of December 31, 1998
PRUDENTIAL
UTILITY FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media--0.2%
1,135,971 Ascent Entertainment Group,
Inc.(a) $
8,377,786
- ------------------------------------------------------------
Oil & Gas Exploration/Production--1.4%
1,000,000 Alberta Energy Co., Ltd. (Canada)
21,500,000
1,635,610 EEX Corp.
11,449,270
359,100 Enron Oil & Gas Co.
6,194,475
168,300 Oryx Energy Co.(a)
2,261,531
1,514,800 Pioneer Natural Resources Co.
13,254,500
1,600,000 Union Pacific Resources Group,
Inc.
14,500,000
-----------
- ----
69,159,776
- ------------------------------------------------------------
Real Estate Investment Trust--1.3%
895,800 Crescent Real Estate Equities, Co.
20,603,400
969,900 Equity Residential Property Trust
39,220,331
-----------
- ----
59,823,731
- ------------------------------------------------------------
Telecommunications--13.1%
1,402,200 AT&T Corp.
105,515,550
1,739,600 BCE, Inc. (Canada)
65,996,075
500,000 Bell Atlantic Corp.
26,500,000
2,023,000 Comsat Corp.
72,828,000
2,126,100 Frontier Corp.
72,287,400
1,009,055 Hellenic Telecommunication
Organization S.A. (GDR)
(Greece)
13,243,847
1,460,000 Millicom International Cellular
S.A. (Luxembourg)(a)
50,917,500
2,054,050 SBC Communications, Inc.
110,148,431
600,000 Swisscom AG (ADR)
25,537,500
371,400 Telecomunicacoes Brasileiras S.A.
(ADR)(a) (Brazil)
26,996,138
1,211,500 Telefonos de Mexico, S.A. (ADR)
(Mexico) $
58,984,906
-----------
- ----
628,955,347
-----------
- ----
Total common stocks
(cost $3,008,754,872)
4,569,700,535
-----------
- ----
PREFERRED STOCKS--1.5%
- ------------------------------------------------------------
Gas Pipelines--0.6%
710,000 KN Energy Inc.
26,669,375
- ------------------------------------------------------------
Telecommunications--0.9%
475,000 Nortel Inversora S.A.,
Convertible, 10.00% (Argentina)
24,700,000
398,000 Philippine Long Distance Telephone
Co. Convertible (GDR) (The
Philippines)
18,905,000
-----------
- ----
43,605,000
-----------
- ----
Total preferred stocks
(cost $70,380,000)
70,274,375
-----------
- ----
Principal
Amount
(000)
- ------------------------------------------------------------
BONDS--1.4%
- ------------------------------------------------------------
Electrical Power--0.3%
$ 10,000 Niagara Mohawk Power Corp.,
9.50%, 3/1/21
10,646,100
5,000 Texas Utilities Co.,
9.75%, 5/1/21
5,596,750
-----------
- ----
16,242,850
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
Portfolio of Investments as of December 31, 1998
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Oil & Gas Exploration--0.1%
$ 2,000 Oryx Energy Co.,
9.50%, 11/1/99 $
2,053,000
- ------------------------------------------------------------
U.S. Government Obligations--1.0%
43,000 United States Treasury Bond
6.375%, 8/15/27
49,422,910
-----------
- ----
Total bonds
(cost $59,909,042)
67,718,760
-----------
- ----
Total long-term investments
(cost $3,139,043,914)
4,707,693,670
-----------
- ----
SHORT-TERM INVESTMENT--2.0%
- ------------------------------------------------------------
Repurchase Agreement
96,072 Joint Repurchase Agreement
Account,
4.69%, 1/4/99
(cost $96,072,000; Note 5)
96,072,000
-----------
- ----
- ------------------------------------------------------------
Total Investments--100.0%
(cost $3,235,115,914; Note 4)
4,803,765,670
Other assets in excess of
liabilities
518,959
-----------
- ----
Net Assets--100% $
4,804,284,629
-----------
- ----
-----------
- ----
</TABLE>
- ---------------
(a) Non-income producing.
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, 1998
<S>
<C>
Investments, at value (cost
$3,235,115,914).............................................
................ $ 4,803,765,670
Cash........................................................
............................................
66,804
Dividends and interest
receivable..................................................
..................... 14,945,959
Receivable for Fund shares
sold........................................................
................. 3,375,742
Receivable for investments
sold........................................................
................. 26,275
Prepaid expenses and other
assets......................................................
................. 101,816
- -----------------
Total
assets......................................................
................................... 4,822,282,266
- -----------------
Liabilities
Payable for Fund shares
reacquired..................................................
.................... 9,565,315
Payable for investments
purchased...................................................
.................... 3,298,340
Distribution fee
payable.....................................................
........................... 2,286,948
Management fee
payable.....................................................
............................. 1,596,993
Accrued
expenses....................................................
.................................... 1,004,436
Foreign withholding taxes
payable.....................................................
.................. 245,605
- -----------------
Total
liabilities.................................................
................................... 17,997,637
- -----------------
Net
Assets......................................................
........................................ $
4,804,284,629
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 3,986,086
Paid-in capital in excess of
par.........................................................
............ 3,157,423,314
- -----------------
3,161,409,400
Undistributed net investment
income......................................................
............ 3,417,699
Accumulated net realized gain on
investments.................................................
........ 70,782,641
Net unrealized appreciation on investments and foreign
currencies....................................
1,568,674,889
- -----------------
Net assets, December 31,
1998........................................................
................... $ 4,804,284,629
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($2,740,649,789 / 227,316,481 shares of common stock
issued and outstanding)......................
$12.06
Maximum sales charge (5% of offering
price)......................................................
.... .63
- -----------------
Maximum offering price to
public......................................................
............... $12.69
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($1,989,921,641 / 165,179,989 shares of common stock
issued and outstanding)......................
$12.05
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($27,071,611 / 2,247,226 shares of common stock issued
and outstanding)...........................
$12.05
Sales charge (1% of offering
price)......................................................
............ .12
- -----------------
Offering price to
public......................................................
....................... $12.17
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($46,641,588 / 3,864,952 shares of common stock issued
and outstanding)...........................
$12.07
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31,
1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $3,291,897)............... $ 141,305,902
Interest.............................. 13,926,018
----------------
- -
Total income....................... 155,231,920
----------------
- -
Expenses
Management fee........................ 19,099,006
Distribution fee--Class A............. 6,629,270
Distribution fee--Class B............. 21,200,458
Distribution fee--Class C............. 203,090
Transfer agent's fees and expenses.... 5,315,000
Custodian's fees and expenses......... 580,000
Reports to shareholders............... 460,000
Registration fees..................... 90,000
Insurance............................. 86,000
Legal fees............................ 45,000
Directors' fees....................... 40,000
Audit fee and expenses................ 32,000
Miscellaneous......................... 26,885
----------------
- -
Total expenses..................... 53,806,709
----------------
- -
Net investment income.................... 101,425,211
----------------
- -
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions............... 391,925,240
Foreign currency transactions......... 486,292
----------------
- -
392,411,532
----------------
- -
Net change in unrealized appreciation (depreciation) on:
Investments........................... (137,478,889)
Foreign currencies.................... 168,826
----------------
- -
(137,310,063)
----------------
- -
Net gain on investments and foreign
currencies............................ 255,101,469
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $ 356,526,680
----------------
- -
----------------
- -
</TABLE>
PRUDENTIAL UTILITY FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December
31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income...... $ 101,425,211 $
111,754,871
Net realized gain on
investments............. 392,411,532
412,749,671
Net change in unrealized
appreciation
(depreciation) of
investments............. (137,310,063)
539,842,910
-------------- ----------
- -------
Net increase in net assets
resulting from
operations.............. 356,526,680
1,064,347,452
-------------- ----------
- -------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................. (68,056,406)
(60,645,408)
Class B................. (37,778,258)
(40,354,565)
Class C................. (384,643)
(200,787)
Class Z................. (1,307,870)
(1,038,271)
-------------- ----------
- -------
(107,527,177)
(102,239,031)
-------------- ----------
- -------
Distributions from net
realized capital gains
Class A................. (197,560,744)
(211,158,424)
Class B................. (153,950,412)
(182,907,714)
Class C................. (1,758,047)
(998,463)
Class Z................. (3,456,422)
(3,229,427)
-------------- ----------
- -------
(356,725,625)
(398,294,028)
-------------- ----------
- -------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares
sold.................... 598,995,199
413,071,389
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 426,138,453
459,144,179
Cost of shares
reacquired.............. (883,989,695)
(865,755,515)
-------------- ----------
- -------
Net increase in net assets
from Fund share
transactions............ 141,143,957
6,460,053
-------------- ----------
- -------
Total increase................ 33,417,835
570,274,446
Net Assets
Beginning of year............. 4,770,866,794
4,200,592,348
-------------- ----------
- -------
End of year(a)................ $4,804,284,629 $
4,770,866,794
-------------- ----------
- -------
-------------- ----------
- -------
(a) Includes undistributed net
investment income of...... $ 3,417,699 $
9,335,543
-------------- ----------
- -------
</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: Securities traded on an exchange and
NASDAQ National
Market Securities are valued at the last reported sales
price on the exchange or
system on which they are traded or, if no sale was reported
on that date, at the
mean between the last reported bid and asked prices or at
the bid price on such
day in the absence of an asked price. Securities traded in
the over-the-counter
market (including securities listed on exchanges whose
primary market is
believed to be over-the-counter) are valued by an
independent pricing agent or
principal market maker. 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.
Securities for which
reliable market quotations are not readily available are
valued by the Valuation
Committee or Board of Directors in consultation with the
manager or subadviser.
In connection with transactions in 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 U.S. 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
- ------------------------------------------------------------
- --------------------
9
<PAGE>
Notes to Financial Statements
PRUDENTIAL UTILITY FUND, INC.
- ------------------------------------------------------------
- --------------------
net capital gains in excess of capital 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.
Taxes: It is the Fund's policy to continue to meet the
requirements of the
Internal Revenue Code applicable to regulated investment
companies and to
distribute all of its taxable net income to its
shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided
for in accordance with
the Fund's understanding of the applicable country's tax
rules and rates.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income by $184,122,
decrease accumulated net realized gain on investments by
$25,078,864 and
increase paid-in-capital by $24,894,742 for realized foreign
currency gains and
for redemptions utilized as distributions for federal income
tax purposes during
the year ended December 31, 1998. 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 had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A,
Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential
Investment
Management Services LLC ('PIMS') became the distributor of
the Fund effective
June 1, 1998 and is serving the Fund under the same terms
and conditions as
under the agreement with PSI. The Fund compensated PSI and
PIMS 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 were accrued
daily and payable monthly. No distribution or service fees
are paid to PIMS as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS 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, 1998.
PSI and PIMS have advised the Fund that they received
approximately $1,167,500
and $14,700 in front-end sales charges resulting from sales
of Class A and Class
C shares, respectively, during the year ended December 31,
1998. From these
fees, PSI and PIMS paid such sales charges to dealers, which
in turn paid
commissions to salespersons and incurred other distribution
costs.
PSI and PIMS have advised the Fund that for the year ended
December 31, 1998,
they received approximately $1,683,000 and $10,500 in
contingent deferred sales
charges imposed upon redemptions by certain Class B and
Class C shareholders,
respectively.
PSI, PIFM, PIMS 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, 1998. 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, 1998 and has been extended through February 28,
1999 under the same
terms.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Notes to Financial Statements
PRUDENTIAL UTILITY FUND, INC.
- ------------------------------------------------------------
- --------------------
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, 1998,
the Fund incurred fees of approximately $4,358,300 for the
services of PMFS. As
of December 31, 1998, approximately $360,700 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, 1998, PSI earned
approximately $24,600 in
brokerage commissions from portfolio transactions executed
on behalf of the
Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended December 31, 1998, were $777,205,059 and
$860,819,895,
respectively.
The federal income tax basis of the Fund's investments at
December 31, 1998 was
$3,239,570,632 and, accordingly, net unrealized appreciation
for federal income
tax purposes was $1,564,195,038 (gross unrealized
appreciation--$1,721,146,534;
gross unrealized depreciation--$156,951,496).
- ------------------------------------------------------------
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, 1998, the
Fund had a 13.96% undivided interest in the joint account.
The undivided
interest for the Fund represents $96,072,000 in principal
amount. As of such
date, each repurchase agreement in the joint account and the
collateral therefor
were as follows:
Bear Stearns & Co., Inc., 4.75%, in the principal amount of
$165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $169,478,699.
Deutsche Bank Securities Inc., 4.80%, in the principal
amount of $100,000,000,
repurchase price $100,053,333, due 1/4/99. The value of the
collateral including
accrued interest was $102,001,052.
Goldman Sachs & Co., 4.25%, in the principal amount of
$93,088,000, repurchase
price $93,131,958, due 1/4/99. The value of the collateral
including accrued
interest was $94,950,662.
Morgan (J.P.) Securities Inc., 4.75%, in the principal
amount of $165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $168,300,696.
Warburg Dillon Read, Inc., 4.75%, in the principal amount of
$165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $168,529,699.
- ------------------------------------------------------------
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 front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
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, 1998:
Shares sold..................... 19,037,525 $
237,779,818
Shares issued in reinvestment of
dividends and distributions... 19,621,888
242,393,959
Shares reacquired............... (29,837,592)
(374,504,596)
------------ ----------
- -----
Net increase in shares
outstanding before
conversion.................... 8,821,821
105,669,181
Shares issued upon conversion
from Class B.................. 9,025,214
109,890,889
------------ ----------
- -----
Net increase in shares
outstanding................... 17,847,035 $
215,560,070
------------ ----------
- -----
------------ ----------
- -----
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
------------ ----------
- -----
------------ ----------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
11
<PAGE>
Notes to Financial Statements
PRUDENTIAL UTILITY FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- -------------------------------- ------------ ----------
- -----
<S> <C> <C>
Year ended December 31, 1998:
Shares sold..................... 24,489,734 $
307,013,338
Shares issued in reinvestment of
dividends and distributions... 14,344,999
177,016,698
Shares reacquired............... (37,529,567)
(468,939,125)
------------ ----------
- -----
Net increase in shares
outstanding before
conversion.................... 1,305,166
15,090,911
Shares reacquired upon
conversion into Class A....... (9,136,008)
(109,890,889)
------------ ----------
- -----
Net decrease in shares
outstanding................... (7,830,842) $
(94,799,978)
------------ ----------
- -----
------------ ----------
- -----
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)
------------ ----------
- -----
------------ ----------
- -----
<CAPTION>
Class C
- --------------------------------
Year ended December 31, 1998:
Shares sold..................... 1,692,797 $
21,154,562
Shares issued in reinvestment of
dividends and distributions... 161,515
1,983,980
Shares reacquired............... (701,686)
(8,661,428)
------------ ----------
- -----
Net increase in shares
outstanding................... 1,152,626 $
14,477,114
------------ ----------
- -----
------------ ----------
- -----
<CAPTION>
Class C Shares Amount
- -------------------------------- ------------ ----------
- -----
<S> <C> <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
------------ ----------
- -----
------------ ----------
- -----
<CAPTION>
Class Z
- --------------------------------
Year ended December 31, 1998:
Shares sold..................... 2,632,084 $
33,047,481
Shares issued in reinvestment of
dividends and distributions... 383,622
4,743,816
Shares reacquired............... (2,547,360)
(31,884,546)
------------ ----------
- -----
Net increase in shares
outstanding................... 468,346 $
5,906,751
------------ ----------
- -----
------------ ----------
- -----
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
------------ ----------
- -----
------------ ----------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
12
<PAGE>
Financial Highlights
PRUDENTIAL UTILITY FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
-------------
- ----------------------------------------
Year Ended December 31,
-------------
- ----------------------------------------
1998(b)
1997(b) 1996(b) 1995 1994
------- -
- ------ ------- ------ ------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year......... $12.33
$10.88 $ 9.87 $ 8.27 $ 9.72
------- -
- ------ ------- ------ ------
Income from investment operations
Net investment income...................... .30
.34 .32 .30 .31
Net realized and unrealized gains (losses)
on investment and foreign currency
transactions............................ .69
2.53 1.80 1.79 (1.06)
------- -
- ------ ------- ------ ------
Total from investment operations........ .99
2.87 2.12 2.09 (.75)
------- -
- ------ ------- ------ ------
Less distributions
Dividends from net investment income....... (.32)
(.32) (.32) (.30) (.32)
Distributions from net realized gains...... (.94)
(1.10) (.79) (.19) (.36)
Distributions in excess of net realized
gains................................... --
- -- -- -- (.02)
------- -
- ------ ------- ------ ------
Total distributions..................... (1.26)
(1.42) (1.11) (.49) (.70)
------- -
- ------ ------- ------ ------
Net asset value, end of year............... $12.06
$12.33 $10.88 $ 9.87 $ 8.27
------- -
- ------ ------- ------ ------
------- -
- ------ ------- ------ ------
TOTAL RETURN(a)............................ 7.98%
27.77% 22.09% 25.74% (7.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000,000).......... $2,741
$2,583 $2,023 $1,709 $254
Average net assets (000,000)............... $2,652
$2,201 $1,786 $1,440 $294
Ratios to average net assets:
Expenses, including distribution fees... .78%
.82% .86% .88% .88%
Expenses, excluding distribution fees... .53%
.57% .61% .63% .63%
Net investment income................... 2.43%
2.95% 3.10% 3.12% 3.37%
For Class A, B, C and Z shares:
Portfolio turnover rate................. 17%
15% 17% 14% 15%
</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,
-------------
- ----------------------------------------
1998(b)
1997(b) 1996(b) 1995 1994
------- -
- ------ ------- ------ ------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year......... $12.32
$10.88 $ 9.87 $ 8.26 $ 9.69
------- -
- ------ ------- ------ ------
Income from investment operations
Net investment income...................... .21
.25 .24 .22 .24
Net realized and unrealized gains (losses)
on investment and foreign currency
transactions............................ .69
2.53 1.80 1.80 (1.05)
------- -
- ------ ------- ------ ------
Total from investment operations........ .90
2.78 2.04 2.02 (.81)
------- -
- ------ ------- ------ ------
Less distributions
Dividends from net investment income....... (.23)
(.24) (.24) (.22) (.24)
Distributions from net realized gains...... (.94)
(1.10) (.79) (.19) (.36)
Distributions in excess of net realized
gains................................... --
- -- -- -- (.02)
------- -
- ------ ------- ------ ------
Total distributions..................... (1.17)
(1.34) (1.03) (.41) (.62)
------- -
- ------ ------- ------ ------
Net asset value, end of year............... $12.05
$12.32 $10.88 $ 9.87 $ 8.26
------- -
- ------ ------- ------ ------
------- -
- ------ ------- ------ ------
TOTAL RETURN(a)............................ 7.18%
26.80% 21.16% 24.80% (8.51)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000,000).......... $1,990
$2,132 $2,137 $2,355 $3,526
Average net assets (000,000)............... $2,120
$2,059 $2,184 $2,450 $4,152
Ratios to average net assets:
Expenses, including distribution fees... 1.53%
1.57% 1.61% 1.63% 1.63%
Expenses, excluding distribution fees... .53%
.57% .61% .63% .63%
Net investment income................... 1.67%
2.20% 2.35% 2.37% 2.62%
</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 Class Z
-------------
- ----------------------------------------------- --------
- -----------
August 1,
1994(d) Year Ended December
Year Ended December 31, Through
31,
-------------
- ------------------------------ December 31, --------
- -----------
1998(b)
1997(b) 1996(b) 1995 1994 1998(b)
1997(b)
------- -
- ------ ------- ------- ------------ -------
- -------
<S> <C>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 12.32 $
10.88 $ 9.87 $ 8.26 $ 9.30 $ 12.34
$ 10.88
------- -
- ------ ------- ------- ------ -------
- -------
Income from investment operations
Net investment income...................... .21
.25 .24 .22 .11 .34
.36
Net realized and unrealized gains (losses)
on investment and foreign currency
transactions............................ .69
2.53 1.80 1.80 (.69) .69
2.54
------- -
- ------ ------- ------- ------ -------
- -------
Total from investment operations........ .90
2.78 2.04 2.02 (.58) 1.03
2.90
------- -
- ------ ------- ------- ------ -------
- -------
Less distributions
Dividends from net investment income....... (.23)
(.24) (.24) (.22 ) (.13) (.36)
(.34)
Distributions from net realized gains...... (.94)
(1.10) (.79) (.19 ) (.31) (.94)
(1.10)
Distributions in excess of net realized
gains................................... --
- -- -- -- (.02) --
- --
------- -
- ------ ------- ------- ------ -------
- -------
Total distributions..................... (1.17)
(1.34) (1.03) (.41 ) (.46) (1.30)
(1.44)
------- -
- ------ ------- ------- ------ -------
- -------
Net asset value, end of period............. $ 12.05 $
12.32 $ 10.88 $ 9.87 $ 8.26 $ 12.07
$ 12.34
------- -
- ------ ------- ------- ------ -------
- -------
------- -
- ------ ------- ------- ------ -------
- -------
TOTAL RETURN(a)............................ 7.18%
26.80% 21.16% 24.80 % (6.27)% 8.24%
28.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $27,072
$13,490 $ 6,001 $3,455 $ 787 $46,642
$41,904
Average net assets (000)................... $20,309 $
9,424 $ 4,517 $2,181 $ 433 $46,093
$35,994
Ratios to average net assets:
Expenses, including distribution fees... 1.53%
1.57% 1.61% 1.63 % 1.70%(c) .53%
.57%
Expenses, excluding distribution fees... .53%
.57% .61% .63 % .70%(c) .53%
.57%
Net investment income................... 1.71%
2.20% 2.35% 2.37 % 2.65%(c) 2.68%
3.20%
<CAPTION>
March 1,
1996(e)
Through
December 31,
1996(b)
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 10.05
------
Income from investment operations
Net investment income...................... .29
Net realized and unrealized gains (losses)
on investment and foreign currency
transactions............................ 1.67
------
Total from investment operations........ 1.96
------
Less distributions
Dividends from net investment income....... (.34)
Distributions from net realized gains...... (.79)
Distributions in excess of net realized
gains................................... --
------
Total distributions..................... (1.13)
------
Net asset value, end of period............. $ 10.88
------
------
TOTAL RETURN(a)............................ 20.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 34,446
Average net assets (000)................... $ 34,291
Ratios to average net assets:
Expenses, including distribution fees... .61%(c)
Expenses, excluding distribution fees... .61%(c)
Net investment income................... 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, 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, 1998, 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, 1998 by
correspondence with the custodian and brokers, provide a
reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 23, 1999
Tax Information (Unaudited)
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, 1998) as to the federal
tax status of
dividends paid by the Fund during its fiscal year ended
December 31, 1998.
During 1998, the Fund paid dividends of $1.264 per Class A
share, $1.168 per
Class B share, $1.168 per Class C share and $1.296 per Class
Z share. Of these
amounts, $.937 per Class A, B, C and Z shares represent
distributions from
long-term capital gains which is taxable at 20% rate gain.
The remaining $.327
per Class A share, $.231 per Class B share, $.231 per Class
C share and $.359
per Class Z share represent dividends from ordinary income
(net investment
income and short-term capital gains). The Fund utilized
redemptions as
distributions in the amount of $.015 and $.051 per Class A,
Class B, Class C and
Class Z shares of short-term capital gains and long-term
capital gains,
respectfully. Further, we wish to advise you that 92.91% of
the ordinary income
dividends paid in 1998 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.
Principal
and investment return will fluctuate so that 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 of
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, B, C, and Z shares) with a
similar
investment in the Standard & Poor's 500 Composite Stock
Price
Index (S&P 500 Index) by portraying the initial account
values
at the commencement of operations of Class A, C, and Z
shares,
and for 10 years for Class B shares, and subsequent account
values at the end of the fiscal year (December 31, 1998), as
measured on a quarterly basis, beginning in 1990 for Class A
shares, 1988 for Class B shares, 1994 for Class C shares,
and
1996 for Class Z shares. For purposes of the graphs, and
unless
otherwise indicated in the accompanying tables, it has been
assumed that (a) the maximum applicable front-end sales load
was deducted from the initial $10,000 investment in Class A
and Class C shares; (b) the maximum applicable contingent
deferred sales charges were deducted from the value of the
investment in Class B and Class C shares, assuming full
redemption on December 31, 1998; (c) all recurring fees
(including management fees) were deducted; and (d) all
dividends and distributions were reinvested. Class B shares
will automatically convert to Class A shares, on a quarterly
basis, approximately seven years after purchase. This
conversion
feature is not reflected in the graphs. Class Z shares are
not
subject to a sales charge or distribution fee.
The S&P 500 Index is a market capitalization-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 Index 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 S&P 500 Index is not
the only index that may be used to characterize performance
of equity funds, and other indexes may portray different
comparative performance. Investors cannot invest directly
in an index.
Average Annual Total
Returns - Class A
- ----------------------
With Sales Load
12.37% Since Inception
13.14% for 5 Years Class A (GRAPH)
2.58% for 1 Year
Without Sales Load
13.02% Since Inception
14.30% for 5 Years
7.98% for 1 Year
Average Annual Total
Returns - Class B
- ---------------------
With Sales Load
16.45% Since Inception
13.70% for 10 Years Class B (GRAPH)
13.34% for 5 Years
2.18% for 1 Year
Without Sales Load
16.45% Since Inception
13.70% for 10 Years
13.46% for 5 Years
7.18% for 1 Year
Average Annual Total
Returns - Class C
- ----------------------
With Sales Load
15.74% Since Inception
5.11% for 1 Year Class C (GRAPH)
Without Sales Load
16.00% Since Inception
7.18% for 1 Year
Average Annual Total
Returns - Class Z
- ----------------------
19.74% Since Inception
8.24% for 1 Year Class Z (GRAPH)
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://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
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers 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.
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