Dear Shareholder:
The year 1995 was an exceptional performance year for the financial markets
in general and the same was true for America's Utility Fund. The Fund earned a
total return of 32.3% for 1995, placing it 11th in the field of 78 utility
sector funds for the period.* Total net assets grew to $163 million from $125
million at the end of 1994.
The Fund's performance was positively impacted by the decline in interest
rates and indications of further potential decreases in long-term rates as well
as the rise in the broader stock market averages.
During the year, the utility industry continued its evolution toward a more
competitive environment. Electric utilities, which comprised 58% of the
portfolio on December 31st, continued restructuring to compete in an industry
which is moving away from government regulation and toward aggressive
competition.
In the future, U.S. utilities will continue to restructure their domestic
utility business. Perhaps the most significant new utility strategy in 1995 was
the move into the international arena. With reduced growth prospects and
increasing competition within the industry, utility companies are beginning to
look outside the U.S. for investment opportunities.
The Fund's Board and investment advisor strive to provide a competitive total
return for the future, including a competitive current yield, within prudent
parameters for risk and volatility. This commitment will have to be
accomplished in a utility industry environment that will see even more dramatic
changes in the next five years than it has seen in the last five years.
<PAGE>
[EAGLE LOGO GOES HERE]
The Board recognizes the challenges and the need for prudent management, but
it also recognizes ample opportunity to realize the Fund's goal which seeks to
provide a competitive total return for its shareholders. These opportunities
must be addressed in terms of the changes facing the domestic utility industry.
Your Board will monitor and evaluate utility industry trends and changes in
order to determine whether the investment guidelines of America's Utility Fund
should be expanded as the utility industry moves beyond its core domestic
utility focus.
Finally, let me take this opportunity to thank you for your continued
participation in America's Utility Fund. It takes patience to invest for the
long-term, but it is the best way to save for the future. We look forward to
having you as a shareholder in 1996.
Sincerely yours,
/s/ DAVID L. HEAVENRIDGE
David L. Heavenridge
Chairman and CEO
* Source: Lipper Analytical Services
<PAGE>
DOLLAR-COST
More and more, investors are using dollar-cost averaging to avoid trying to
"time" investment purchases or sales.
America's Utility Fund, with its dollar-cost averaging installment payment
option, has provided shareholders with a way to turn market uncertainty to their
advantage.*
Dollar-cost averaging means you simply invest the same amount of money at
evenly spaced time periods. It doesn't matter whether the market moves up or
down while you're investing.
The chart below illustrates how dollar-cost averaging works.** Assume you
decide to invest $30 a month in a mutual fund over the next 12 months and the
fund price fluctuates.
<TABLE>
<CAPTION>
SHARES CUMULATIVE SHARES TOTAL
MONTH SHARE COST PURCHASED PURCHASED INVESTMENT
<S> <C> <C> <C> <C>
JANUARY $15.00 2.0 2.0 $ 30.00
FEBRUARY $20.00 1.5 3.5 $ 60.00
MARCH $15.00 2.0 5.5 $ 90.00
APRIL $12.00 2.5 8.0 $120.00
MAY $10.00 3.0 11.0 $150.00
JUNE $ 8.00 3.8 14.8 $180.00
JULY $10.00 3.0 17.8 $210.00
AUGUST $10.00 3.0 20.8 $240.00
SEPTEMBER $10.00 3.0 23.8 $270.00
OCTOBER $ 8.00 3.8 27.5 $300.00
NOVEMBER $10.00 3.0 30.5 $330.00
DECEMBER $12.00 2.5 33.0 $360.00
AVERAGE COST OF
SHARES PURCHASES $10.91
COST OF LUMP-SUM
PURCHASE IN JANUARY $15.00
</TABLE>
*This method of investing involves continous investment in a security
regardless of fluctuating price levels and you should consider your financial
ability to continue purchases through periods of low price levels. It won't
assure a profit or protect you from loss in declining markets or against loss if
you stop the program when the value of your account is less than the cost of the
shares you bought.
<PAGE>
AVERAGING
When the price of the fund is low, you buy more shares; when the price is
high you buy fewer shares. This can potentially result in an average cost per
share that is less than the average share price.
In the illustration provided below, the average cost of shares purchased is
$10.91. Had you made a lump-sum investment in January, the cost would have been
$15 per share.
So rather than trying to figure out the best time to buy and sell, you may
want to invest on a periodic basis and avoid the highs and lows.
America's Utility Fund offers investors this option through our monthly
installment plan with a $20 per month minimum.
** This hypothetical example does not represent the results of an
installment purchase in America's Utility Fund. America's Utility Fund may
perform better or worse than this example.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
by John G. Davenport Portfolio Manager
Last year was a welcome relief to the difficult and disappointing utility
market of 1994. For the year 1995 America's Utility Fund produced a total return
including capital appreciation and dividends of 32.3%, a strong performance
compared to other utility sector funds. This was the result of many positive
developments to be reviewed in this letter. Of course, the most important issue
is not what happened last year, but what can reasonably be expected in the year
ahead. Although the markets rarely get much better than 1995, and expectations
should be tempered accordingly, we believe the Fund is well-positioned to add to
its recent gains. Many of the favorable factors boosting utility stock returns
last year are still in place and likely to continue in 1996.
DECLINING INTEREST RATES
To slow the overheating economy and contain inflation, the Federal Reserve
raised interest rates dramatically in 1994. Forced to maintain dividend yields
that were competitive with the rising interest rates, utility stock prices fell.
The Federal Reserve appears to have achieved its mission so far. The economy is
clearly slowing and inflation has remained remarkably low for this late in an
expansion. These results have led to a reversal of the interest rate increases
of 1994, as the 10-year treasury bond ended last year at a 5.6% yield, almost
exactly where it began in 1994. As interest rates declined last year, investors
were willing to accept lower dividend yields from utility stocks and prices rose
accordingly.
GROWING COMPETITIVENESS
The past year also produced a more realistic view of the competitive and
regulatory restructuring issues emerging in the electric utility industry.
Although the inevitable transition to a more competitive national power market
is well underway -- at least 35 states are already weighing various approaches
to competitive power markets -- investors recognize that this enormous change
will not happen overnight. Regulators are realizing that there needs to be a
reasonably structured transition process that balances the interests of many
constituencies.
<PAGE>
MEANWHILE...
While investors have become more realistic about the timing of increased
electric utility competition, utility managements will have to use this
breathing room wisely. The regulated utility marketplace has produced few
obvious winners or losers in the past, a condition that will certainly change.
Increased competition naturally brings increased opportunities and risks.
Financial, operational, and managerial strengths will become more evident and
much more important to shareholder returns in the years to come.
STOCK SELECTION
Our stock selection process closely examines the competitive position of each
company. We focus on companies with low cost structures, attractive service
territories, diversified customer bases, solid financial positions, and sensible
strategies. We are not interested in stocks that appear cheap, but have real
competitive disadvantages. We invest in companies that we believe can not only
defend their own markets, but successfully penetrate other markets as
deregulation unfolds. Our strong belief that these stocks offer both lower risk
and higher long-term return was supported by their superior performance in the
past year.
Another recent positive influence on utility stocks has been their so-called
defensive characteristics. The term "defensive" simply implies that utility
results are less vulnerable to a downturn in the economy. Regardless of whether
a recession actually occurs, we are confident that industrial corporate profits
will peak at some time in the next year. The typically stable results of
utilities should become relatively more attractive in this scenario.
Consequently, utility stock valuations relative to other industries should
improve in 1996.
<PAGE>
DIVERSIFICATION
Over the past two years, the Fund has better diversified within the overall
utility sector. Electric utility stocks now represent 58% of the portfolio as we
have continued to increase the allocation to telecommunication stocks (21%),
natural gas distribution stocks (7.7%), and corporate bonds (4.7%). We expect
this diversification process to continue and would not be surprised to see
electric utilities make up only 50% of the portfolio by year-end. Greater
diversification reduces the volatility of the Fund, and at the same time,
provides more opportunities to improve the long-term return.
The benefits of diversification were particularly evident in 1995. Although
the electric utility stocks had a good year, our telecommunication stocks were
by far the best performers. Driven by technological advances and lower costs,
demand for telecommunication services has been very strong. These favorable
conditions have enabled the local telephone and long distance companies to show
earnings and dividend growth well above the average electric utility. Although
the telecommunication industry is also facing major regulatory and competitive
changes, we believe the positive outlook for demand in this area should make
these stocks meaningful to the Fund in the future.
1996 OUTLOOK
We believe the Fund has the potential to perform well in the year ahead. The
transition to competition should proceed at a reasonable pace, and our core
holdings are well equipped to take advantage of the opportunities competition
brings. The economic backdrop should also support these shares this year. As the
economy continues to decelerate, interest rates are likely to remain stable or
move down and corporate earnings are likely to turn down. Both of these factors
should support utility stock valuations, which currently appear to be at
reasonably attractive levels. Although we are unlikely to repeat the gains of
1995, we find ample reason to expect solid progress.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1995
ONE YEAR SINCE INCEPTION (5/5/92)*
32.30% 10.85%
SEC CURRENT YIELD AS OF DECEMBER 31, 1995 3.86%**
[CHART GOES HERE]
<TABLE>
<CAPTION>
5/92 6/92 9/92 12/92 3/93 6/93 9/93 12/93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
America's Utility Fund 10,000 10,170 10,892 11,190 12,235 12,642 13,198 12,679
S&P Utilities Index~ 9,985 10,122 10,919 11,195 12,402 12,696 13,586 12,811
</TABLE>
<TABLE>
<CAPTION>
3/94 6/94 9/94 12/94 3/95 6/95 9/95 12/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
America's Utility Fund 11,290 10,728 11,141 11,019 11,759 12,479 13,485 14,577
S&P Utilities Index~ 11,753 11,750 11,806 11,794 12,607 13,544 15,105 16,691
</TABLE>
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operation of America's Utility Fund from the date of inception
5/5/92 through 12/31/95.
** SEC current yield is calculated by dividing the net investment income
per share for the 30 days ended 12/31/95 by the offering price per share
on that date. The figure is then compounded and annualized.
*** Represents a hypothetical investment of $10,000 in America's Utility
Fund. Performance assumes the reinvestment of all dividends and
distributions.
~ The S&P Utilities Index is one of four broad sectors in the S&P 500
Index and includes all the utility stocks in the S&P 500 Index. It is a
market-value weighted index (stock price times shares outstanding), with
each stock affecting the Index in proportion to its market value. This
Index, calculated by Standard & Poor's, is a total return index with
dividends reinvested. Investors may not invest in an index. The S&P
Utilities Index is used as the benchmark for the performance of
America's Utility Fund (AUF) because it is identified by the investment
advisor as the index that most accurately reflects the management style
and portfolio composition of AUF.
This material must be preceded or accompanied by a current Prospectus for
America's Utility Fund, which contains complete information regarding fees,
sales charges, and expenses. Please read it carefully before you invest or send
money.
<PAGE>
AMERICA'S UTILITY FUND, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Shares or Market Value
Face Amount Common Stocks (Note 2)
<S> <C> <C>
PUBLIC UTILITY - ELECTRIC -
57.93%
212,000 Allegheny Power Systems, Inc. $ 6,068,500
188,000 Baltimore Gas & Electric Company 5,358,000
182,000 Central and Southwest
Corporation 5,073,250
94,950 Cinergy Corporation 2,907,844
145,000 Detroit Edison Company 5,002,500
191,000 DPL, Inc. 4,727,250
139,950 DQE, Inc. 4,303,462
65,000 Duke Power Company 3,079,375
125,000 Eastern Utilities Associates
Company 2,953,125
95,500 General Public Utilities
Corporation 3,247,000
114,000 IPALCO Enterprises, Inc. 4,346,250
122,250 LG&E Energy Corporation 5,165,062
33,800 NIPSCO Industries, Inc. 1,292,850
88,200 Northern States Power Company 4,332,825
185,000 Ohio Edison Company 4,347,500
209,000 Potomac Electric Power Company 5,486,250
143,000 Public Service Company of
Colorado 5,058,625
110,000 Public Service Enterprise Group,
Inc. 3,368,750
194,000 SCANA Corporation 5,553,250
203,000 Southern Company 4,998,875
109,500 TECO Energy Company 2,805,938
145,500 Western Resources, Inc. 4,856,063
94,332,544
PUBLIC UTILITY - NATURAL GAS -
7.66%
114,000 Brooklyn Union Gas Company 3,334,500
35,000 Indiana Energy 835,625
118,000 Nicor, Inc. 3,245,000
90,000 Pacific Enterprise Company 2,542,500
75,000 Questar Corporation 2,512,500
12,470,125
</TABLE>
<TABLE>
<CAPTION>
Shares or Market Value
Face Amount Common Stocks (Note 2)
<S> <C> <C>
TELECOMMUNICATIONS - 20.61%
58,000 AT&T Corporation $ 3,755,500
80,000 Ameritech 4,720,000
135,000 GTE Corporation 5,940,000
193,000 MCI Communications Corporation 5,042,125
65,000 NYNEX Corporation 3,510,000
41,000 SBC Communications Corporation 2,357,500
132,000 Sprint Corporation 5,263,500
83,000 U.S. West, Inc. 2,967,250
33,555,875
Total Common Stocks - 86.20%
(cost $122,459,120) 140,358,544
CORPORATE BONDS - 4.67%
$1,250,000 Duke Power Company, 8.00%,
11/1/99 1,345,312
2,000,000 Pacific Gas & Electric Company,
5.88%, 10/1/05 1,940,000
2,000,000 Texas Utilities Electric
Company, 8.25%, 4/1/04 2,252,500
2,000,000 Washington Water Power, 6.75%,
4/15/99 2,059,960
Total Corporate Bonds
(cost $7,309,435) 7,597,772
TEMPORARY INVESTMENTS - 8.74%
13,930,000 Federal Home Loan Bank, Discount
Note, 5.60%, due 1/2/96 13,927,833
305,668 Mellon Bank Deposit Instruments
at 5.45%, dated 12/29/95, due
1/2/96 305,668
Total Temporary Investments
(cost $14,233,551) 14,233,501
TOTAL INVESTMENTS - 99.61%
(COST $144,002,106) 162,189,817
OTHER ASSETS LESS LIABILITIES -
0.39% 640,541
NET ASSETS - 100.00% $162,830,358
</TABLE>
See notes to financial statements.
<PAGE>
AMERICA'S UTILITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at market value --
identified cost $144,002,106 (Note 2) $162,189,817
Receivables
Dividends and interest receivable 784,807
Capital shares sold 147,335
Total assets 163,121,959
LIABILITIES
Dividends payable 107,708
Capital shares redeemed 35,059
Accrued expenses 148,834
Total liabilities 291,601
NET ASSETS $162,830,358
Net Assets represented by:
Additional paid-in capital $149,272,638
Undistributed net investment income 46,671
Accumulated net realized loss on investment
transactions (4,676,662)
Net unrealized appreciation of investments 18,187,711
Net Assets $162,830,358
Shares outstanding 6,586,756
Net Asset Value Per Share $ 24.72
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME
Dividends $ 6,918,646
Interest 1,150,636
Total investment income (Note 2) 8,069,282
EXPENSES
Administrative service fees (Note 5) 948,530
Investment advisor fees (Note 5) 323,431
Shareholder reports 168,544
Shareholder services fees (Note 5) 140,179
Printing and postage expenses 69,745
Directors' fees 58,508
Transfer agent fees (Note 5) 56,072
Legal fees 46,254
Custody fees 35,000
Audit fees 22,000
Registration fees 21,625
Insurance and other 35,088
Total expenses 1,924,976
Deduct
Expenses assumed by administrative services
company (Note 5) (185,103)
Net expenses 1,739,873
Net investment income 6,329,409
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,297,943
Change in unrealized appreciation or
depreciation of investments for the year 33,092,284
Net realized and unrealized gain on
investments 34,390,227
Net increase in net assets resulting from
operations $40,719,636
</TABLE>
See notes to financial statements.
<PAGE>
AMERICA'S UTILITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
NET INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income $ 6,329,409 $ 5,793,402
Net realized gain (loss)
on investments 1,297,943 (6,104,101)
Change in unrealized
appreciation (depreciation) of
investments 33,092,284 (17,180,151)
Increase (decrease) in net assets
resulting from operations 40,719,636 (17,490,850)
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (6,298,780) (5,804,002)
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 18,986,502 31,649,629
Reinvested distributions 5,908,003 5,558,294
Cost of shares redeemed (21,494,033) (22,429,458)
Change in net assets from
capital share transactions 3,400,472 14,778,465
Increase (decrease) in net assets 37,821,328 (8,516,387)
Net assets
Beginning of year 125,009,030 133,525,417
End of year $162,830,358 $125,009,030
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.50 $ 23.54 $ 21.95 $ 20.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.96 0.96 0.91 0.63
Net realized and unrealized gain (loss) on investments 5.22 (4.04) 2.00 1.80
Total from investment operations 6.18 (3.08) 2.91 2.43
LESS DISTRIBUTIONS
Dividends from net investment income 0.96 0.96 0.92 0.67
Distributions from net realized capital gains 0.00 0.00 0.40 0.35
Total distributions 0.96 0.96 1.32 1.02
NET ASSET VALUE, END OF PERIOD $ 24.72 $ 19.50 $ 23.54 $ 21.95
Total Return 32.30% (13.10%) 13.26% 18.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions) $162.83 $125.01 $133.53 $ 43.67
Ratio of expenses to average net assets 1.21% 1.21% 1.21% 1.21%
Ratio of expenses to average net assets before expense reductions 1.34% 1.33% 1.41% 1.41%
Ratio of net investment income to average net assets 4.40% 4.66% 4.19% 4.99%
Portfolio turnover rate 27.77% 28.85% 21.20% 24.16%
</TABLE>
(a) Dividends from net investment income include investment income earned prior
to commencement of sales to the public. The total return and the ratios to
average net assets are annualized.
See notes to financial statements.
<PAGE>
AMERICA'S UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 1: ORGANIZATION
America's Utility Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund was organized as a Maryland corporation on January 28, 1992. On
February 14, 1992 (initial investment date), the Fund sold 500,000 shares of
common stock to Dominion Resources, Inc., the ultimate parent of America's
Utility Fund Service Company, for $10,000,000. The Fund commenced sales to the
public on May 5, 1992. The following summarizes the significant accounting
policies of the Fund.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION. Investments in securities traded on a national securities
exchange and over-the-counter securities quoted on the NASDAQ National Market
System are valued at the last reported sales price or, lacking any sales, at the
last available bid price. Securities traded in the over-the-counter market,
other than those quoted on the NASDAQ National Market System, are valued at the
last available bid price. Short-term investments with remaining maturities of 60
days or less are carried at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith under procedures approved by the Board of
Directors.
REPURCHASE AGREEMENTS. It is the policy of the Fund to require that repurchase
agreement investments be fully collateralized at all times. Procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's underlying securities to ensure the existence of a proper
level of collateral.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Fund's adviser to be creditworthy pursuant to guidelines established by the
Fund's Board of Directors. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly, the
Fund could receive less than the repurchase price on the sale of collateral
securities.
FEDERAL INCOME TAXES. The Fund intends to qualify as a regulated investment
company by complying with the requirements of the Internal Revenue Code and to
distribute all its taxable income to its shareholders. Therefore, no federal
income tax provision is required. Effective January 1, 1994, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2, Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies. As a result, the Fund changed the classification of
certain distributions to shareholders for financial reporting purposes. The
cumulative effect of adopting the statement was to reclassify $967,486 to
accumulated net realized gains from undistributed net investment income, due to
the tax treatment of net short-term capital gains for tax purposes. At December
31, 1995, the Fund, for federal tax purposes, had a capital loss carryover of
approximately $4,806,158. Pursuant to the Internal Revenue Code, such capital
loss carryover will expire in 2002.
DISTRIBUTION TO SHAREHOLDERS. Dividends to shareholders are recorded on the
ex-dividend date. Dividends from net investment income are declared and paid
quarterly. Distributions of capital gains, if any, are made annually.
SECURITY TRANSACTIONS. The Fund records security transactions on the trade date.
Gains and losses on securities sold are determined on the first-in, first-out
(FIFO) method. Discounts and premiums on securities purchased are amortized over
the life of the respective securities.
INVESTMENT INCOME. Dividend income is recognized on the ex-dividend date, and
interest income is recognized daily on an accrual basis.
NOTE 3: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities)
were $39,125,520 and $35,317,878, respectively. Net unrealized appreciation at
December 31, 1995, based on the cost of securities for federal income tax
purposes of $144,002,106 is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $19,133,976
Gross unrealized depreciation (946,265)
Net unrealized appreciation $18,187,711
</TABLE>
NOTE 4: CAPITAL SHARE TRANSACTIONS
As of December 31, 1995 there were 500,000,000 shares of $0.0001 par value
capital stock authorized. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year
Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
Shares sold 874,570 1,529,357
Shares issued upon reinvestment
of dividends 264,072 278,823
Shares redeemed (962,767) (1,069,298)
175,875 738,882
</TABLE>
NOTE 5: ADMINISTRATIVE SERVICES FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Commonwealth Investment Counsel, Inc. ("Commonwealth"), serves as investment
manager to the Fund under a Management Contract dated September 9, 1995.
Commonwealth is a wholly owned subsidiary of Mentor Investment Group, Inc.,
which in turn is a wholly owned subsidiary of Wheat First Butcher Singer Inc.
Commonwealth receives for its services an annual investment management fee
expressed as a percentage of average daily net assets as follows: 0.75% of the
first $5 million of average daily net assets, 0.50% of the next $5 million,
0.25% of the next $90 million, 0.20% of the next $100 million, 0.15% of the next
$100 million and 0.10% of the average daily net assets in excess of $300
million.
Mentor Investment Group, Inc. ("Mentor") provides administrative personnel and
services to the Fund under an Administration Agreement dated August 21, 1995.
Pursuant to the Agreement, the Fund pays Mentor a fee at the annual rate of
0.65% of the Fund's average daily net assets, less the amount of any management
fees paid to Commonwealth pursuant to the Management Contract.
<PAGE>
Prior to August 21, 1995, the Fund paid fees to America's Utility Fund Service
Company ("AUFSC") under an Administrative Services and Transfer Agency
Agreement, pursuant to which AUFSC provided administrative, transfer agency and
dividend disbursing agency services. The Fund paid fees under that Agreement at
an annual rate of 1.00% of the Fund's average daily net assets less the amount
of any fees payable to the Fund's investment adviser.
The Fund has entered into a Shareholder Services Agreement with Mentor dated
August 21, 1995, pursuant to which Mentor, itself, through AUFSC, or through
other financial institutions, provides shareholder support services to the Fund
and its shareholders. The Fund pays fees to Mentor under that Agreement at an
annual rate of 0.25% of the Funds average daily net assets. Pursuant to a
Sub-Shareholder Services Agreement between Mentor and AUFSC, Mentor in turn pays
fees to AUFSC at the same annual rate of the Fund's assets in respect of which
AUFSC provides specified shareholder services.
AUFSC also receives fees from the Fund's transfer agent for services performed
under a Sub-Transfer Agency Agreement dated August 21, 1995. Pursuant to that
Agreement, the transfer agent pays AUFSC a fee at the annual rate of 0.10% of
the Fund's average daily net assets attributable to shares held by the
shareholders to whom AUFSC provides such sub-transfer agency services.
AUFSC (prior to August 21, 1995) agreed, and Mentor (after August 21, 1995) has
agreed, to bear the expenses of the Fund to the extent total Fund operating
expenses exceed 1.21% of the Fund's average daily net assets. Mentor has agreed
to maintain the expense limitation in effect until September 11, 1996. As a
result of this expense limitation, AUFSC and Mentor incurred expenses of
$118,162 and $66,941 respectively, for the Fund during the 1995 fiscal year.
As of December 31, 1995 Dominion Resources, Inc. and subsidiaries owned 168,016
shares of capital stock, representing 2.6% of the total shares (market value
$4,153,345).
Income Tax Information
Of the ordinary income distributions paid during the period ended December 31,
1995, the Fund is designating 100% as eligible for the dividends-received
exclusion for corporations.
This material must be preceded or accompanied by a current Prospectus for
America's Utility Fund. It contains complete information regarding fees and
expenses. Please read it carefully before investing or sending money.
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
America's Utility Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of America's Utility Fund, Inc. as of
December 31, 1995, and the related statement of operations for the year then
ended and the statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for the years ended December
31, 1995, 1994 and 1993, and for the period May 5, 1992 (commencement of sales
to the public) through December 31, 1992. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of America's Utility
Fund, Inc. as of December 31, 1995 and the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Richmond, Virginia
January 26, 1996
