[AMERICA'S UTILITY LOGO]
AMERICA'S UTILITY FUND, INC.
PROSPECTUS DATED MAY 24, 1996
America's Utility Fund, Inc. seeks current income and moderate capital
growth. The Fund invests primarily in the securities of utility companies.
Commonwealth Investment Counsel, Inc. is the Fund's investment manager.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Please read this Prospectus
and retain it for future reference. INVESTORS CAN FIND MORE DETAILED INFORMATION
IN THE MAY 24, 1996 STATEMENT OF ADDITIONAL INFORMATION, AS AMENDED FROM TIME TO
TIME. FOR A FREE COPY OF THE STATEMENT, CALL AMERICA'S UTILITY FUND SERVICE
COMPANY AT 1-800-487-3863. The Statement has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference. The
Fund's address is 901 East Byrd Street, Richmond, Virginia 23219.
PROJECT AMERICA, INC.
DISTRIBUTOR
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the Fund.
The following table summarizes an investor's maximum transaction costs from
investing in the Fund and Fund expenses based on last fiscal year. The Example
shows the cumulative expenses attributable to a hypothetical $1,000 investment
in the Fund over specified periods.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees* 0.23%
12b-1 Fees None
Other Expenses
Administrative Services Expenses* 0.42%
Shareholder Servicing Arrangements 0.25%
Other Fund Expenses (after expense limitation)** 0.31%
Total Other Expenses (after expense limitation)** 0.98%
Total Fund Operating Expenses** 1.21%
</TABLE>
* The aggregate of Management Fees and Administrative Services Expenses may not
exceed 0.65% of net assets per annum.
** Other Fund Expenses, Total Other Expenses, and Total Fund Operating Expenses
reflect an expense limitation currently in effect. The expense limitation
does not apply to any extraordinary expenses incurred by the Fund, estimated
to be approximately 0.05% during the current fiscal year. Absent the expense
limitation, Other Fund Expenses, Total Other Expenses, and Total Fund
Operating Expenses would be 0.44%, 1.11%, and 1.34% of net assets,
respectively (not reflecting any extraordinary expenses).
EXAMPLE
Your investment of $1,000 in the Fund would incur the following expenses,
assuming a 5% annual return and redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$ 13 $39 $67 $147
</TABLE>
The tables are provided to help you understand the expenses of investing in
the Fund and your share of the operating expenses of the Fund. The Example
should not be considered a representation of future performance; actual expenses
may be greater or less than those shown.
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FINANCIAL HIGHLIGHTS
The following selected data has been audited and reported on by Deloitte &
Touche LLP, the Fund's independent auditors. Their report dated January 26, 1996
on the financial statements of the Fund is included in the Fund's annual report
to shareholders, and is included in the Statement of Additional Information. A
copy of the Fund's annual report may be obtained free of charge from the Fund.
This table should be read in conjunction with the financial statements and
related notes which appear in the Fund's Statement of Additional Information.
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 5, 1992
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED YEAR ENDED
TO DECEMBER 31, 1992(A) DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Net Asset Value, beginning of
period 20.54 $ 21.95 $ 23.54 $ 19.50
Income from Investment Operations
Net investment income 0.63 0.91 0.96 0.96
Net realized and unrealized gain
(loss) on investments 1.80 2.00 (4.04) 5.22
Total from investment operations 2.43 2.91 (3.08) 6.18
Less Distributions
Dividends (for investment income) 0.67 0.92 0.96 0.96
Distributions (from net realized
capital gains) 0.35 0.40 0.00
Return of capital 0.00 0.00 0.00 0.00
Total distributions 1.02 1.32 0.96 0.96
Net Asset Value, end of period $21.95 $ 23.54 $ 19.50 $ 24.72
Total Return 18.76% 13.26% (13.10%) 32.30%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $43.67 $133.53 $125.01 $162.83
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 1.41% 1.41% 1.33% 1.34%
Ratio of net investment income to
average net assets 4.99% 4.19% 4.40% 4.66%
Portfolio turnover rate 24.16% 21.20% 28.85% 27.77%
</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.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income and moderate
capital growth by investing primarily in securities issued by utility companies.
The Fund's investments in utility companies may include equity securities,
including common stocks and preferred stocks, and debt securities. Commonwealth
Investment Counsel, Inc. ("Commonwealth") is the Fund's investment manager.
"Utility companies" include companies engaged in the manufacture,
production, generation, transmission, sale, or distribution of electric or gas
energy and companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave, and other communications media. Commonwealth
considers a particular company to be a "utility company" if at the time of
investment Commonwealth determines that at least 50% of the company's assets,
revenues, or profits are derived from one or more of the activities described
above (other than public broadcasting or cable television). Under normal
circumstances, the Fund will invest at least 65% of its total assets (determined
at the time of investment) in the securities of utility companies.
The Fund may invest the remainder of its assets in other securities it
believes have the potential to produce current income, capital growth, or both.
These may include U.S. government securities, corporate bonds, notes, and
debentures, and equity securities of other kinds of companies. The types of
securities held by the Fund will vary from time to time in light of the Fund's
investment objective, changes in interest rates, and economic and other factors.
The Fund may hold a portion of its assets in cash and money market instruments.
Debt securities in which the Fund may invest will be rated at the time of
purchase at least Baa by Moody's Investors Service, Inc. or BBB by Standard &
Poor's (or comparably rated by another nationally recognized rating
organization), or may be unrated securities determined to be of comparable
quality by Commonwealth. Investments in securities rated BBB or Baa have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments than would likely be the case with
investments in securities with higher credit ratings. The Fund will not
necessarily dispose of a security when its rating is reduced below its rating at
the time of purchase, although Commonwealth will monitor the investment to
determine whether continued investment in the security would serve the Fund's
investment objective.
The investment policies in this prospectus are not fundamental, and the
Board of Directors may change such policies without shareholder approval. As a
matter of policy, the Board of Directors would not change the Fund's investment
objective without shareholder approval.
RISK FACTORS REGARDING THE FUND'S INVESTMENTS IN UTILITY COMPANIES. Since
the Fund's investments are concentrated in securities of utility companies, the
value of its shares can be expected to change in response to factors affecting
utilities and their industries, and may fluctuate more widely than the value of
shares of a portfolio that invests in a broader range of companies. Many utility
companies, especially electric, gas, and other energy-related utility companies,
have historically been subject to risks of increase in fuel costs and other
operating costs, changes in interest rates on borrowings for capital improvement
programs, changes in applicable laws and regulations, changes in technology
which may render existing plants, equipment, or products obsolete, the effects
of energy conservation and operating constraints, and increased costs and delays
associated with compliance with environmental regulations. In particular,
regulatory changes could increase costs or impair the ability of utility
companies to operate their facilities or obtain adequate return on invested
capital. Generally, prices charged by utilities are regulated in the United
States and in foreign countries with the intention of protecting the
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public while ensuring that utility companies earn a return sufficient to allow
them to attract capital in order to grow and continue to provide appropriate
services. There can be no assurance that such pricing policies or rates of
return will continue in the future.
In recent years, regulatory changes in the United States have increasingly
allowed utility companies to provide services and products outside their
traditional geographic areas and lines of business, creating new areas of
competition within the utilities industries. This trend toward deregulation and
the emergence of new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities industries. Commonwealth
believes that the emergence of competition and deregulation will result in
certain utility companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend their core
business from increased competition and may be less profitable. Although
Commonwealth seeks to take advantage of favorable investment opportunities that
may arise from these structural changes, there can be no assurance that the Fund
will benefit from any such changes.
FOREIGN INVESTMENTS. The Fund may invest in foreign securities. Foreign
investments can involve risks that may not be present in domestic investments.
Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's assets may be affected favorably or
unfavorably by currency exchange rates and exchange control regulations. There
may be less information publicly available about a foreign company than a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable with those
in the United States.
The securities of some foreign companies are less liquid and at times more
volatile than securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are also generally higher than those in the United
States. Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the recovery of
Fund assets held abroad) and expenses not present in the settlement of domestic
investments. In addition, there may be a possibility of nationalization or
expropriation of assets, impositions of currency exchange controls, confiscatory
taxation, political or financial instability and diplomatic developments that
could affect the value of investments in certain foreign countries. Legal
remedies available to investors in certain foreign countries may be more limited
than those available with respect to investments in the United States or in
certain other foreign countries. The laws of some foreign countries may limit
investments in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities.
The Fund may buy and sell foreign currencies and foreign currency forward
and futures contracts for hedging purposes in connection with its foreign
investments.
FIXED-INCOME SECURITIES. The values of fixed-income securities typically
fluctuate in response to changes in interest rates. A decrease in interest rates
will generally result in an increase in the value of fixed-income securities
held by the Fund. Conversely, during periods of rising interest rates, the value
of such securities will generally decline. The magnitude of these fluctuations
generally is greater for securities with longer maturities. However, the yields
on such securities are also generally higher. In addition, the values of
fixed-income securities are affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
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OTHER INVESTMENT PRACTICES
INVESTMENTS IN COMPANIES ENGAGED IN THE OIL INDUSTRY. The Fund may invest
in securities of issuers engaged in the production, refining, sale, or
distribution of oil or oil-related products. Under certain market conditions,
the prices of such securities may vary inversely to the prices of securities of
utility companies, and so may provide some limited protection against a decline
in the Fund's net asset value at times of a general decline in prices of
securities of utility companies. The Fund may invest in such securities in an
attempt to gain such protection or in an attempt generally to increase the
Fund's investment return.
The prices of securities of companies in the oil industry and the price of
oil are subject to substantial fluctuations, and may be affected by
unpredictable economic and political circumstances such as social, political, or
military disturbances in or near oil-producing countries or oil shipping or
pipeline routes, the taxation and regulatory policies of various governments,
the activities and policies of OPEC (an organization of major oil producing
countries), the discovery of new oil and gas reserves and the development of new
techniques for producing, refining, and transporting oil, gas, and related
products, energy conservation practices, and the development of alternative
energy sources and alternative uses for oil and gas products. In addition, the
facilities and other assets of such companies in certain jurisdictions may be
subject to the risks of nationalization or expropriation, confiscatory taxation,
and the general risks of political or financial instability and diplomatic
developments that could affect their values adversely.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks, broker/dealers, and other financial institutions approved by the Board of
Directors. These transactions must be fully collateralized at all times, but
involve some risk to the Fund if the other party should default on its
obligations and the Fund is delayed or prevented from recovering the collateral.
PORTFOLIO TURNOVER. The length of time the Fund has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by the Fund is known as "portfolio turnover." Portfolio
turnover generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains. Portfolio turnover rates for the life of
the Fund are shown above in the section "Financial Highlights."
MANAGEMENT OF THE FUND
The Board of Directors of the Fund has overall responsibility for the
management and supervision of the Fund. COMMONWEALTH INVESTMENT COUNSEL, INC.,
901 East Byrd Street, Richmond, Virginia 23219, serves as investment manager to
the Fund. Commonwealth, at its expense, furnishes continuously an investment
program for the Fund and makes investment decisions on behalf of the Fund
consistent with the Fund's stated investment objective, policies, and
restrictions. Commonwealth currently has assets under management in excess of $4
billion, and serves as investment manager to Cash Resource Trust, Mentor
Balanced Portfolio, Mentor Quality Income Portfolio, and Mentor Short-Duration
Income Portfolio, each of which is an open-end investment company, and Mentor
Income Fund, Inc., a closed-end investment company. All investment decisions are
made by a team of investment professionals at Commonwealth.
MENTOR INVESTMENT GROUP, INC. ("MENTOR"), 901 East Byrd Street, Richmond,
Virginia 23219, serves as administrator to the Fund. Mentor, as administrator,
continuously provides business management services to the
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Fund and generally, subject to the oversight of the Board of Directors of the
Fund, manages all of the business and affairs of the Fund (other than those
managed by Commonwealth). The Fund pays Mentor a fee at an annual rate of 0.65%
of the Fund's average daily net assets, less the amount of any management fees
paid to Commonwealth.
Mentor, itself, through America's Utility Fund Service Company ("AUF
Service Company"), or through other financial institutions (the
"Administrator"), provides shareholder support services to the Fund and its
shareholders. These services might include, among other things, providing office
space, equipment, telephone facilities, and various clerical, supervisory, and
computer personnel, as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions; answering routine shareholder inquiries regarding the Fund;
assisting shareholders in changing dividend options, account designations, and
addresses; and providing such other services as the Fund may reasonably request.
Mentor provides these services for a fee paid by the Fund at an annual rate of
0.25% of the Fund's average daily net assets.
Commonwealth, which is organized under the laws of Virginia, is a wholly
owned subsidiary of Mentor, which in turn is a wholly owned subsidiary of Wheat
First Butcher Singer, Inc. Wheat First Butcher Singer, through its affiliated
companies, engages in securities brokerage, investment advisory, investment
banking, and related businesses. AUF Service Company is a wholly owned
subsidiary of Dominion Capital, Inc.
HOW TO INVEST IN THE FUND
There are two basic methods by which you may invest in the Fund: by
installment payments through an installment plan (a "Plan"), or by a single
initial investment with a higher minimum investment amount.
Anyone wishing to invest in the Fund may enroll in a Plan to make regular
monthly payments to the Fund over the course of a year, except for IRA or other
retirement plan accounts. The investor selects the monthly payment amount on the
Plan enrollment form. After receipt of an investor's monthly payment, the Fund
will credit the investor's account with shares in the Fund and any fractions
thereof, priced at the net asset value next determined after receipt thereof.
Similarly, dividends and distributions declared by the Fund will be reinvested
in additional Fund shares unless an investor otherwise notifies the Fund in
writing. A Plan investor may prepay required monthly installments ahead of
schedule.
Alternatively, a person wishing to invest in the Fund may make a single
initial investment in the Fund. This method requires a minimum initial
investment of $1,000 and is the method you should use for establishing an IRA or
other retirement plan account. The Fund will credit such investor's account with
shares in the Fund and any fractions thereof priced at net asset value next
determined after receipt by the Fund of an enrollment application and
accompanying payment. Additional investments may be made at any time, in amounts
of $100 or more. These additional investments will purchase whole and fractional
shares in the Fund priced at the net asset value next determined after receipt
of payment.
Investors using the single payment method may also participate in a monthly
installment plan, if desired. However, the installment method is not available
for IRA or other retirement plan accounts.
7
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INVESTMENT THROUGH AN INSTALLMENT PLAN
1. To invest by making monthly installment payments, complete and sign the
enrollment application and mail it to Project America, Inc. (the "Distributor")
no later than the date specified on the enrollment application.
2. Decide how much you want to invest each month.
Your monthly investment can be any dollar amount that is twenty dollars
($20.00) or more. For administrative purposes, the amount you decide to invest
must be a multiple of five dollars (for example, $20.00, $25.00, $30.00, etc.)
Make sure that you choose an amount that you can afford each month because it is
not possible to decrease your monthly installment during a 12-month payment
period. Investments over the amount of your monthly installment will be accepted
and invested in Fund shares. The excess payment will be applied as prepayment to
your next scheduled monthly installment.
3. After the Fund receives your properly completed application, the Fund
will mail you a coupon book. The coupon book will contain 12 coupons showing
your chosen monthly investment amount and the dates each of your payments is
due.
4. You should mail your check and appropriate coupon each month to the
Distributor. ALL INSTALLMENT PAYMENTS SHOULD BE MADE BY CHECK MADE PAYABLE TO
AMERICA'S UTILITY FUND, INC. AND MAILED TO THE DISTRIBUTOR, P.O. BOX 85124,
RICHMOND, VIRGINIA 23285-5124.
5. If during your first year of participation in a Plan you stop
participating for any reason prior to your Plan's completion and you request a
redemption of your share account, you will receive cash in an amount equal to
the then current net asset value of your shares in the Fund.
INVESTMENT BY SINGLE INITIAL PAYMENT
1. TO INVEST IN THE FUND BY SINGLE INITIAL PAYMENT, COMPLETE THE
APPROPRIATE PORTION OF THE ENROLLMENT APPLICATION AND MAIL THE ENROLLMENT
APPLICATION, WITH A CHECK PAYABLE TO AMERICA'S UTILITY FUND, INC., TO THE
DISTRIBUTOR, 901 EAST BYRD STREET, P.O. BOX 26501, RICHMOND, VIRGINIA
23261-6501. If you do not have an enrollment application, you may call AUF
Service Company or the Distributor to obtain one.
2. Individual Retirement Accounts (IRAs) and other retirement accounts are
established by single initial payment, and require separate enrollment
documentation. If you are interested in an IRA, call the Fund at 1-800-487-3863
to request our IRA enrollment kit.
3. The minimum initial investment is $1,000 or more. Subsequent investments
can be made, whenever you wish, in amounts of $100 or more.
4. If you request a redemption of your share account, you will receive cash
in an amount equal to the then current net asset value of your shares in the
Fund.
GENERAL. Shares of the Fund are sold at the net asset value next determined
after a purchase order in good order is received by the Fund, whether by
installment or single payment method.
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The address of the Distributor is P.O. Box 26782, 901 East Byrd Street,
Richmond, Virginia 23261-6782. The Distributor is not obligated to sell any
specific amount of shares of the Fund. The Distributor is a wholly owned
subsidiary of Dominion Capital, Inc.
METHOD OF INVESTING PAYMENTS AND DISTRIBUTIONS
GENERAL
However you choose to invest in the Fund, the price paid for Fund shares is
the net asset value next determined after receipt of payment and any appropriate
documentation.
Reinvestment of dividends and any capital gains distribution is made at the
net asset value determined on the payment date thereof.
NET ASSET VALUE
Net asset value per share is determined by subtracting the liabilities of
the Fund from the market value of its assets, dividing the remainder by the
number of shares outstanding and adjusting the results to the nearest full cent.
Net asset value is computed once daily as of 4:00 P.M. on each day that the New
York Stock Exchange is open for trading. In determining net asset value,
securities listed or traded on a national securities exchange are valued on the
basis of the last sale price. If there are no sales on a particular day, then
the securities shall be valued at the mean between the bid and asked prices. If
a mean cannot be determined, then the securities are valued at the best
available current bid price. All other securities for which market quotations
are available are valued on the basis of the last current bid price. If there is
no bid price, or if the bid price is deemed to be unsatisfactory by the Fund's
Board of Directors or by Commonwealth, then the securities shall be valued in
good faith by such methods as the Board of Directors determines will reflect
their fair market value. Short-term investments that will mature in 60 days or
less are stated at amortized cost, which approximates the fair market value of
such investments.
YOUR RIGHTS IN THE FUND AND UNDER YOUR PLAN
When you indicate on your enrollment application that you wish to invest in
the Fund and make systematic installment payments, you will become a Plan
participant. This installment program is referred to as your Plan. You may
complete the terms of your Plan ahead of schedule by making any or all payments
in advance of their due dates. Unless you exercise a termination of your Plan,
your Plan shall continue in force for a period of 12 months.
DIVIDENDS AND DISTRIBUTIONS
All dividends and capital distributions on Fund securities will be
reinvested in additional Fund shares for your account on the payment date as
determined by the Board of Directors, unless in a written notice received by the
Administrator not less than five business days prior to the payment date, the
shareholder elects to receive such dividends and distributions in cash. Once the
Fund receives such written notice of election to receive cash distributions, the
Fund will continue to pay all such distributions in cash until otherwise
instructed in writing by the shareholder.
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Dividends of ordinary income will normally be paid by the Fund quarterly,
and long-term capital gains, if any, will normally be paid annually. Investors
must report on their income tax form both dividends and capital gains, whether
received in cash or reinvested in additional Fund shares. The Fund's net asset
value will decrease, immediately after the close of business on the record date,
by the amount of the dividend or capital gains distribution declared by the
Fund's Board of Directors.
REDEMPTION OF FUND SHARES
Regardless of whether your participation in the Fund is through a Plan or
by the single initial payment method, you may redeem all of your account and
terminate your participation at any time by sending a written request for full
redemption to the Administrator. You can also redeem portions of your account.
If your investment balance falls below $240 as a result of a partial redemption,
you will be given 60 days from the date of the notice of this event in which to
invest a sufficient amount to re-establish the minimum investment balance of
$240, or the account will be terminated and your shares will be redeemed and the
proceeds remitted to you. "Investment balance" means your payments in your
account plus reinvested dividends and distributions, all unaffected by
reductions in market value, less redemptions.
The Fund may redeem and terminate those shareholder accounts which have
failed to achieve a minimum of $240 within the first year of participation
through a Plan. Prior to an involuntary redemption and termination by the Fund,
a shareholder will be given 60 days from the date of the notice of this event in
which to invest a sufficient amount to establish the minimum investment balance
of $240.
All requests for redemptions must be made to the Administrator in writing
signed by the shareholder(s) of the account, in the name(s) as shown on the
account statement. It is suggested that all redemption requests be sent by
certified mail, return receipt requested. The Fund's Custodian or Administrator
may require certain documentation. If the cash redemption is $25,000 or more,
your written redemption request must have your signature guaranteed by a
commercial bank, trust company or broker. All documents must be in proper order
before any liquidations can be made. The redemption price will be the net asset
value next determined after such documents have been received in proper order.
Your request should be sent to the Administrator at 901 East Byrd Street, P.O.
Box 26501, Richmond, Virginia 23261-6501.
The Fund may also redeem shares if you own shares of the Fund above any
maximum amount set by the Board of Directors. There is presently no maximum, but
the Board of Directors may establish one at any time, which could apply to both
present and future shareholders.
The right of redemption of shares of the Fund may be suspended at times
when the trading on the New York Stock Exchange is restricted or such trading on
the New York Stock Exchange is closed for any reason other than weekends and
holidays or any emergency is deemed to exist by the Securities and Exchange
Commission, as a result of which it is not reasonably practicable for the Fund
to dispose of its portfolio securities or to determine its net asset value. As
long as the right of redemption of shares of the Fund is suspended, no shares
may be redeemed, and therefore no cash withdrawals may be made.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, the
Fund may suspend redemption, or postpone payment for more than seven days, as
permitted by federal securities laws. In addition, the Fund reserves the right,
if conditions exist which make cash payments undesirable, to honor any request
for redemption
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by making payment in whole or in part by securities valued in the same way as
they would be valued for purposes of computing the Fund's per share net asset
value. If payment is made in securities, a shareholder may incur brokerage
expenses in converting those securities into cash.
TAXES
The Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for it
to be relieved of federal taxes on income and gains it distributes to
shareholders. The Fund will distribute substantially all of its net investment
income and capital gain net income on a current basis.
All Fund distributions will be taxable to shareholders as ordinary income,
except that any distributions of net capital gain will be taxed as long-term
capital gain, regardless of how long a shareholder has held the shares (although
the loss on a sale of shares held for six months or less will be treated as
long-term capital loss to the extent of any capital gain distribution received
with respect to those shares). Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment of distributions.
Early in each year the Fund will notify shareholders of the amount and tax
status of distributions paid by the Fund for the preceding year. In buying or
selling securities for the Fund, Commonwealth will not normally take into
account the effect any purchase or sale of securities will have on the tax
positions of the Fund's shareholders.
The foregoing is a summary of certain federal income tax consequences of
investing in the Fund. Dividends and distributions also may be subject to state
and local taxes. Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state, or local taxes. Non-U.S. investors
should consult their tax advisers concerning the tax consequences of ownership
of shares of the Fund, including the possibility that distributions may be
subject to United States withholding tax (or a reduced rate of withholding
provided by treaty).
TAX-SHELTERED RETIREMENT PLANS
INDIVIDUAL RETIREMENT ACCOUNT
An Individual Retirement Account (IRA) is a tax-sheltered way to save for
retirement. Call the Fund at 1-800-487-3863 for a complete IRA enrollment kit
and a description of fees and expenses.
The various types of IRAs available under our program are:
(Bullet) INDIVIDUAL RETIREMENT ACCOUNT -- Allows anyone under age 70 1/2
with earned income to make contributions up to the lesser of such
earned income or $2,000 each tax year.
(Bullet) SPOUSAL IRA -- Allows $250 contributions for a non-working spouse.
(Bullet) ROLLOVER IRA -- Allows contributions of tax-free distributions
from one IRA, or from a qualified employer-sponsored plan, to
another IRA.
(Bullet) SIMPLIFIED-EMPLOYEE PENSION IRA (SEP-IRA) -- Allows employers to
set up an individual retirement account for both employees and the
employer. Employers may contribute up to 15 percent of an
employee's compensation, or $30,000, whichever is less. Existing
tax codes treat the employer as an employee in these cases.
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THE FUND
America's Utility Fund, Inc. is a Maryland corporation organized on January
28, 1992. The Fund is an open-end, diversified, management investment company
with 500,000,000 shares of authorized common stock, $.001 par value. Each share
has one vote, with fractional shares voting proportionately. Shares of the Fund
are freely transferable, are entitled to dividends as declared by the Board of
Directors, and, if the Fund were liquidated, would receive the net assets of the
Fund. The Fund may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Fund is not required to hold annual
meetings of its shareholders, shareholders have the right to call a meeting to
elect or remove Directors, or to take other actions as provided in the Articles
of Incorporation.
In the interest of economy and convenience, the Fund will not issue
certificates for its shares.
TRANSFER AND DIVIDEND AGENT SERVICES
STATE STREET BANK AND TRUST COMPANY, c/o Boston Financial Data Services,
Inc., 2 Heritage Drive, North Quincy, Massachusetts 02171, serves as the Fund's
transfer and dividend agent. AMERICA'S UTILITY FUND SERVICE COMPANY, 901 East
Byrd Street, Richmond, Virginia, 23219, serves as the sub-transfer and dividend
agent of the Fund.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Fund. The Fund's "yield" is calculated by dividing the
Fund's annualized net investment income per share during a recent 30-day period
by its net asset value on the last day of that period. "Total return" for the
one-, five-, and ten-year periods (or for the life of the Fund, if shorter)
through the most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the Fund over the
period. The Fund's performance may be compared to various indices. See the
Statement of Additional Information. Information may be presented in
advertisements about the Fund describing the background and professional
experience of the Fund's investment manager or its personnel.
ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES NOT
PREDICT FUTURE PERFORMANCE. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
investments, and the Fund's operating expenses. Investment performance also
often reflects the risks associated with the Fund's investment objective and
policies. These factors should be considered when comparing the Fund's
investment results to those of other mutual funds and other investment vehicles.
12
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY
BE MADE. THIS PROSPECTUS OMITS CERTAIN INFORMATION CONTAINED IN THE REGISTRATION
STATEMENT, TO WHICH REFERENCE IS MADE, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. ITEMS WHICH ARE THUS OMITTED, INCLUDING CONTRACTS AND OTHER
DOCUMENTS REFERRED TO OR SUMMARIZED HEREIN, MAY BE OBTAINED FROM THE COMMISSION
UPON PAYMENT OF THE PRESCRIBED FEES. ADDITIONAL INFORMATION CONCERNING THE
SECURITIES OFFERED HEREBY AND THE FUND IS TO BE FOUND IN THE REGISTRATION
STATEMENT, INCLUDING VARIOUS EXHIBITS THERETO AND FINANCIAL STATEMENTS INCLUDED
OR INCORPORATED THEREIN, WHICH MAY BE INSPECTED AT THE OFFICE OF THE COMMISSION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Expense Summary................................. 2
Example......................................... 2
Financial Highlights............................ 3
Investment Objective and Policies............... 4
Other Investment Practices...................... 6
Management of the Fund.......................... 6
How to Invest in the Fund....................... 7
Method of Investing Payments and
Distributions................................. 9
Your Rights in the Fund and Under
Your Plan..................................... 9
Taxes........................................... 11
Tax-Sheltered Retirement Plans.................. 11
The Fund........................................ 12
Transfer and Dividend Agent Services............ 12
Performance Information......................... 12
</TABLE>
PROSPECTUS
America's Utility Fund, Inc.
[AMERICA'S UTILITY LOGO]
PROJECT AMERICA, INC.
DISTRIBUTOR
Prospectus Dated May 24, 1996
AMERICA'S UTILITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 24, 1996
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of America's Utility Fund, Inc. dated
May 24, 1996, a copy of which may be obtained by writing America's Utility Fund
Service Company, 901 East Byrd Street, P.O. Box 26501, Richmond, Virginia
23261-6501, or by calling 1-800-487-3863.
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION........................................................................B-2
INVESTMENT RESTRICTIONS....................................................................B-2
CERTAIN INVESTMENT TECHNIQUES..............................................................B-4
MANAGEMENT................................................................................B-10
CONTROL PERSONS AND PRINCIPAL HOLDERS.....................................................B-14
INVESTMENT ADVISORY SERVICES..............................................................B-14
OTHER SERVICES............................................................................B-16
BROKERAGE.................................................................................B-18
DETERMINATION OF NET ASSET VALUE..........................................................B-20
TAX STATUS................................................................................B-21
DISTRIBUTION .............................................................................B-23
PERFORMANCE INFORMATION...................................................................B-23
OFFICERS OF COMMONWEALTH..................................................................B-27
CUSTODIAN.................................................................................B-29
INDEPENDENT AUDITORS......................................................................B-29
RATINGS ..................................................................................B-29
FINANCIAL STATEMENTS......................................................................B-32
</TABLE>
B-1
<PAGE>
GENERAL INFORMATION
America's Utility Fund, Inc. (the "Fund") was organized on January 28,
1992 as a Maryland corporation, and is registered as a diversified, open-end,
management investment company.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions, which may not be
changed without approval by the holders of a majority of the outstanding shares
of the Fund:
1. Not to purchase any security (other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, for temporary investment) if as a result more
than 5% of the Fund's total assets are invested in the securities
of any one issuer; the Fund will concentrate its investments
(more than 25% of its assets) in securities issued by utility
companies.
2. Not to purchase any security if as a result the Fund would then
hold more than 10% of any class of securities of an issuer
(taking all common stock issues as a single class, all preferred
stock issues as a single class and all debt issues as a single
class) or more than 10% of the outstanding voting securities of
any one issuer.
3. Not to borrow money or securities for any purpose except to the
extent that borrowing up to 10% of the Fund's total assets is
permitted for emergency purposes. (Any such borrowings will be
made on a temporary basis from banks and will not be made for
investment purposes.) Money borrowed will be repaid before
additional portfolio securities are purchased.
4. Not to invest in securities of any issuer if, to the knowledge of
the Fund, any officer or director of the Fund or of the Manager
owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers and directors who own more than 1/2 of
1% own in the aggregate more than 5% of the outstanding
securities of such issuer.
5. Not to purchase securities for the purpose of exercising control
over the issuers thereof.
6. Not to underwrite securities of other issuers; provided, that
this policy shall not be construed to prevent or limit in any
manner the right of the Fund to purchase securities for
investment purposes.
B-2
<PAGE>
7. Not to make loans to other persons other than (i) through the
purchase of a portion of an issue of publicly distributed debt
securities which are not considered loans, (ii) through the
purchase of bonds, debentures, commercial paper, corporate notes
and similar evidences of indebtedness of a type commonly sold
privately to financial institutions, or (iii) by entering into
repurchase agreements with respect to not more than 25% of its
total assets (taken at current value).
8. Not to buy securities on margin, or to effect short sales of
securities. (Margin payments in connection with transactions in
futures contracts, options, forward contracts, and other
financial instruments are not considered to constitute the
purchase of securities on margin for this purpose.)
9. Not to issue senior securities other than as consistent with
borrowings permitted under 3 above.
10. Not to invest in the securities of other investment companies
except by purchases in the open market involving only customary
brokerage commissions and as a result of which not more than 5%
of its total assets (taken at current value) would be invested in
such securities, or except as part of a merger, consolidation or
other acquisition.
11. Not to own, buy or sell commodities or commodity contracts
(except that the Fund may purchase and sell foreign currencies,
foreign currency futures contracts and related options), or real
estate or interests in real estate; provided, that the Fund may
purchase and sell securities which are secured by real estate and
securities of companies which invest or deal in real estate.
12. Not to invest in warrants unless acquired as a unit or attached
to other securities.
13. Not to invest in puts, calls, straddles, spreads, or any
combination thereof (except that the Fund may invest in foreign
currency futures and options transactions and forward contracts).
14. Not to invest in limited partnerships or similar interests in
oil, gas and other mineral exploration development programs;
provided, that the Fund may invest in the securities of other
corporations whose activities include such exploration and
development.
15. Not to invest more than 5% of its total assets in any issuer or
issuers having a record of less than three years continuous
operation, which may include the operations of predecessor
companies.
B-3
<PAGE>
16. Not to purchase any security restricted as to disposition under
federal securities laws.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that the approval of a majority of the outstanding shares of the Fund
means the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Fund and (2) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Subject to future changes in the law or in the rules or regulations of
the Securities and Exchange Commission, the Fund will not invest in Dominion
Resources, Inc. or any affiliates thereof unless appropriate exemptive relief is
first obtained from the Commission.
It is also a policy of the Fund, which may be changed without
shareholder approval, not to purchase any voting security of any electric or gas
utility company (as defined by the Public Utility Holding Company Act of 1935)
if as a result the Fund would then hold 5% or more of the outstanding voting
securities of such company.
Although not a fundamental policy, the Fund will not invest in
securities which are not readily marketable. (Foreign currency forward
contracts, futures contracts, and options are not considered securities for this
purpose.)
CERTAIN INVESTMENT TECHNIQUES
Set forth below is information concerning certain investment techniques
in which the Fund may engage, and certain of the risks they may entail.
Repurchase Agreements
A repurchase agreement is a contract under which the Fund acquires a
security for a relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to resell such
security at a fixed time and price (representing the Fund's cost plus interest).
It is the Fund's present intention to enter into repurchase agreements only with
member banks of the Federal Reserve System and securities dealers meeting
certain criteria as to creditworthiness and financial condition established by
the Board of Directors and only with respect to obligations of the U.S.
government or its agencies or instrumentalities or other high quality short term
debt obligations. Repurchase agreements may also be viewed as loans made by the
Fund which are collateralized by the securities subject to repurchase.
B-4
<PAGE>
Commonwealth will monitor such transactions to ensure that the value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. If the seller
defaults, the Fund could realize a loss on the sale of the underlying security
to the extent that the proceeds of sale including accrued interest are less than
the resale price provided in the agreement including interest. In addition, if
the seller should be involved in bankruptcy or insolvency proceedings, the Fund
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying collateral to the seller's estate.
Foreign Securities
Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that the Fund's foreign investments are not
United States dollar-denominated, the Fund may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
Income received by the Fund from sources within foreign countries may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known, and tax laws and their interpretations may
change from time to time and may change without advance notice. Any such taxes
paid by the Fund will reduce its net income available for distribution to
stockholders.
Foreign Currency Transactions
The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. The Fund may engage in both "transaction hedging" and
"position hedging".
When it engages in transaction hedging, the Fund enters into foreign
currency transactions with respect to specific receivables or payables of the
Fund generally arising in
B-5
<PAGE>
connection with the purchase or sale of its portfolio securities. The Fund will
engage in transaction hedging when it desires to "lock in" the U.S. dollar price
of a security it has agreed to purchase or sell, or the U.S. dollar equivalent
of a dividend or interest payment in a foreign currency. By transaction hedging
the Fund will attempt to protect against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the applicable
foreign currency during the period between the date on which the security is
purchased or sold or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. The
Fund may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Fund the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Fund the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Fund the right to assume a
long position in the futures contract until the expiration of the option. A call
option on currency gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Fund are denominated or are
quoted in their principle trading markets or an increase in the value of
currency for securities which the Fund expects to purchase. In connection with
position hedging, the Fund may buy or sell foreign currency futures contracts
and put and call options on foreign currencies and on foreign currency futures
contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of the
Fund's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely,
B-6
<PAGE>
it may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities of the Fund if
the market value of such security or securities exceeds the amount of foreign
currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
B-7
<PAGE>
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
Foreign Currency Options. Options on foreign currencies are traded
primarily in the over-the-counter market, although options on foreign currencies
have recently been listed on several exchanges. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
Options on foreign currencies are affected by all of those factors which
influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the markets
for the underlying currencies remain open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the U.S.
options markets.
Settlement Procedures. Settlement procedures relating to the Fund's
investments in foreign securities and to the Fund's foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and the Fund may be required to accept or make delivery of the
underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
B-8
<PAGE>
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
Segregation of Assets
The Fund may at times segregate assets in respect of certain
transactions in which the Fund enters into a commitment to pay money or deliver
securities at some future date. Any such segregated account will be maintained
by the Fund's custodian and may contain cash, U.S. government securities or
other liquid high grade debt obligations, or other appropriate assets.
B-9
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The directors and officers of the Fund are as follows. Unless otherwise
noted, the address of each officer and director is 901 East Byrd Street,
Richmond, Virginia 23219.
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
Arch T. Allen, III Director Attorney at Law,
1214 Cowper Drive Raleigh, North Carolina,
Raleigh, NC 27608 August 2, 1995 to date;
Vice Chancellor for
Development and
University Relations of
the University of North
Carolina at Chapel Hill
from September 15, 1991
to August 2, 1995; prior
to September 15, 1991,
partner with the law
firm of Moore & Van
Allen.
Robert P. Black Director Retired, January 1,
10 Dahlgren Road 1993; prior to that
Richmond, VA 23233 date, President of the
Federal Reserve Bank of
Richmond, Virginia.
Director of Media
General Corporation,
Rockingham Publishing
Company, Inc.,
Winchester Evening Star,
Inc., and all of the T.
Rowe Price Fixed Income
Funds.
Peter W. Brown Director Physician, Virginia
4603 Sulgrave Road Surgical Associates,
Richmond, VA 15260 P.C.; Director, Bassett
Furniture Industries,
Inc.
Clifford A. Cutchins, IV Director Senior Vice-President,
General Counsel, and
Secretary, James River
Corporation.
B-10
<PAGE>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
Daniel J. Ludeman* Director Chairman and Chief
Executive Officer of
Mentor Investment Group,
Inc. since July 1991;
Board of Directors,
Wheat, First Securities,
Inc. and Mentor Income
Fund, Inc.; Managing
Director, Wheat First
Butcher Singer, Inc.;
Chairman and Trustee,
The Mentor Funds, Cash
Resource Trust, and
Mentor Institutional
Trust.
Louis W. Moelchert, Jr. Director Vice President of
Business and Finance,
University of Richmond;
Chairman, The Common
Fund; Trustee, The
Mentor Funds, Cash
Resource Trust, and
Mentor Institutional
Trust.
Linwood R. Robertson* President and Chief Senior Vice President -
Operating Officer; Finance, Treasurer and
Director Corporate Secretary of
DRI; from October 1,
1994 to January 1, 1995,
Vice President Finance,
Treasurer and Corporate
Secretary of DRI; prior
to October 1, 1994, Vice
President - Finance and
Treasurer of DRI; from
January 28, 1992 to May
17, 1994, Vice President
and Secretary of the
Fund; Vice President,
Treasurer and Corporate
Secretary of AUF Service
Company from January 31,
1992 to September 30,
1994.
* This person is deemed to be an "interested person" of the Fund under the
Investment Company Act of 1940, as amended.
B-11
<PAGE>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
Paul F. Costello Executive Vice Managing Director,
President, Chief Mentor Investment Group,
Administrative Officer Inc. and Wheat First
Butcher Singer;
President, Mentor Income
Fund, The Mentor Funds,
Mentor Institutional
Trust, and Cash Resource
Trust; Director, Mentor
Perpetual Advisors,
L.L.C. and Mentor Trust
Company; formerly,
Director, President and
Chief Executive Officer,
First Variable Life
Insurance Company;
President and Chief
Financial Officer,
Variable Investors
Series Trust; President
and Treasurer, Atlantic
Capital & Research,
Inc.; Vice President and
Treasurer, Variable
Stock Portfolio, Inc.,
Monarch Investment
Series Trust, and GEICO
Tax Advantage Series
Trust; Vice President,
Monarch Life Insurance
Company, GEICO
Investment Services
Company, Inc., Monarch
Investment Services
Company, Inc., and
Springfield Life
Insurance Company.
Glenna G. Bryant Vice President, President and Treasurer
Administration of Project America, Inc;
President and Chief
Operating Officer of
AUF Service Company
from August 31, 1995
to date; from August 10,
1992 to August 31, 1995,
Vice President of
Project America, Inc.;
from March to August
1992, self-employed;
Vice President of
Mariner Funds Services,
Inc. prior to March
1992; from September 30,
1994 to August 31, 1995,
Senior Vice President
and Treasurer of AUF
Service Company.
B-12
<PAGE>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
Terry L. Perkins Treasurer Vice President, Mentor
Investment Group, Inc.;
Treasurer, Cash Resource
Trust, Mentor Income
Fund, Inc., The Mentor
Funds, and Mentor
Institutional Trust.;
formerly, Treasurer and
Comptroller, Ryland
Capital Management, Inc.
Henry C. Riely Secretary Assistant Corporate
Secretary of DRI and
Corporate Secretary of
Dominion Capital, Inc.;
Secretary of AUF Service
Company and Project
America, Inc. from
October 1, 1994 to date.
Michael A. Wade Assistant Treasurer Associate Vice
President, Mentor
Investment Group, Inc.
since April 1994;
Assistant Treasurer,
Cash Resource Trust,
Mentor Income Fund,
Inc., and The Mentor
Funds; formerly, Senior
Accountant, Wheat First
Butcher Singer, Inc.,
April 1993 through March
1994; Audit Senior, BDO
Seidman, July 1989
through March 1993.
B-13
<PAGE>
DIRECTOR COMPENSATION
The table below shows the fees paid to each Director by the Fund for the
1995 fiscal year. Messrs. Cutchins, Ludeman, Moelchert and Robertson were
elected to the Board of Directors in May 1996.
Aggregate compensation
Director from the Fund
David L. Heavenridge* $ 0
Arch T. Allen, III $13,250
Robert P. Black $13,250
Peter W. Brown $13,250
William B. Moore* $9,750
- ----------------
* No longer serving as Director.
The Directors do not receive pension or retirement benefits from the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS
The Directors and officers as a group owned less than 1% of the
outstanding shares of common stock of the Fund. To the knowledge of the Fund, as
of February 1, 1996 no person owned of record or beneficially more than 5% of
the outstanding shares of common stock of the Fund as of such date, except as
set forth below:
NUMBER OF PERCENTAGE
NAME AND ADDRESS SHARES OF OUTSTANDING
Signet Trust Company 744,357 11.34%
INVESTMENT ADVISORY SERVICES
Commonwealth Investment Counsel, Inc. ("Commonwealth") acts as
investment adviser to the Fund pursuant to a Management Contract. 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. Subject to the
supervision and direction of the Board of Directors, Commonwealth manages the
Fund's portfolio in accordance with the stated policies of the Fund.
Commonwealth make investment decisions for the Fund and places the purchase and
sale orders for portfolio transactions.
B-14
<PAGE>
Commonwealth provides the Fund with investment officers who are
authorized to execute purchases and sales of securities. Investment decisions
for the Fund and for the other investment advisory clients of Commonwealth and
its affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged as to price and
allocated between such clients in a manner which in Commonwealth's opinion is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients.
Commonwealth employs a professional staff of investment personnel who draw upon
a variety of resources for research information for the Fund.
Expenses incurred in the operation of the Fund, including but not
limited to taxes, interest, brokerage fees and commissions, SEC fees and related
expenses, state Blue Sky qualification fees, charges of the custodian and
transfer and dividend disbursing agents, outside auditing, accounting, and legal
services, investor servicing fees and expenses, charges for the printing of
prospectuses and statements of additional information for regulatory purposes or
for distribution to shareholders, certain shareholder report charges, and
charges relating to corporate matters are borne by the Fund.
The Management Contract is subject to annual approval (commencing in
1997) by (i) the Board of Directors or (ii) vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the Fund, provided that in
either event the continuance is also approved by a majority of the Directors who
are not "interested persons" (as defined in the 1940 Act) of the Fund or
Commonwealth by vote cast in person at a meeting called for the purpose of
voting on such approval. The Management Contract is terminable without penalty,
on not more than sixty days' notice by the Fund or Commonwealth.
Under the Management Contract, the Fund pays a monthly fee, calculated
daily, to Commonwealth at the following rates expressed as a percentage of the
Fund's average net assets: 0.75% of the first $5 million, 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% thereafter.
Prior to September 9, 1995, Lord, Abbett & Co. ("Lord, Abbett"), the
General Motors Building, 767 Fifth Avenue, New York, New York 10153 served as
investment adviser to the Fund under an Investment Advisory Agreement dated
February 14, 1992. For its services, Lord, Abbett received $100,000 through
February 13, 1993, $200,000 from February 14, 1993 through February 13, 1994,
and $300,000 from February 14, 1994 through February 13, 1995. After
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<PAGE>
February 13, 1995, the Fund paid a quarterly fee to Lord, Abbett according to
the same schedule for fees under the Management Contract with Commonwealth.
MANAGEMENT FEES
The Fund paid management fees in the following amounts for the fiscal
years indicated below:
1993 1994 1995*
------------- ------------- ----------
$218,621 $292,099 $323,431
* Of the amount paid, $198,375 was paid to Lord, Abbett.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Mentor Investment Group, Inc. ("Mentor") acts as administrator to the
Fund pursuant to an Administrative Services Agreement. Pursuant to the
Administrative Services Agreement, Mentor assists the Fund in preparation of
certain reports to shareholders of the Fund, tax returns, and filings with the
SEC and state Blue Sky authorities, prepares and furnishes reports to the Fund's
Board of Directors, and generally assists in the Fund's business operations.
The Administrative Services Agreement is subject to annual approval
(commencing in 1997) by (i) the Board of Directors or (ii) vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the Fund,
provided that in either event the continuance is also approved by a majority of
the Directors who are not "interested persons" (as defined in the 1940 Act) of
the Fund, or Mentor, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Administration Agreement is terminable without
penalty, immediately upon notice, by the Board of Directors or by vote of the
holders of a majority of the Fund shares, and on not less than thirty days'
notice by Mentor. The Agreement will terminate automatically in the event of its
assignment.
The Fund pays Mentor for such services at an 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.
Prior to August 21, 1995, America's Utility Fund Service Company ("AUF
Service Company") provided administrative services and certain shareholder and
transfer and dividend payment agent services to the Fund pursuant to an
Administrative Services and Transfer Agency
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Agreement. For these combined services, AUF Service Company received fees from
the Fund at the annual rate of 1% of the Fund's average net assets. AUF Service
Company also paid the management fee for the Fund.
ADMINISTRATIVE FEES
The Fund paid the following fees for administrative services for the
fiscal years indicated below. Amounts prior to August 21, 1995 reflect the 1%
fee paid to AUF Service Company.
1993 1994 1995*
------------- ------------- ----------
$678,254 $952,198 $948,530
- ----------------
* Of this amount, $735,127 was paid to AUF Service Company.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Service Agreement dated August
21, 1995 with Mentor, pursuant to which Mentor, by itself, through AUF Service
Company, or through other financial institutions, provides shareholder support
services to the Fund and its shareholders. These services may include, but are
not limited to, providing office space and various clerical, supervisory, and
computer personnel for the maintenance of shareholder accounts, processing
purchase and redemption transactions, and providing assistance to shareholders.
In return for providing these services, the Fund pays Mentor a fee, at the
annual rate of 0.25% of the Fund's average daily net assets. Pursuant to a
Sub-Shareholder Services Agreement between Mentor and AUF Service Company,
Mentor agrees to pay fees to AUF Service Company at the same annual rate of the
Fund's net assets in respect of which AUF Service Company provides specified
shareholder services.
The Fund paid shareholder services fees to Mentor (which in turn paid
fees to AUF Service Company) of $140,179 during fiscal year 1995. As described
above, prior to August 21, 1995, certain of these services were provided by AUF
Service Company under a different agreement.
TRANSFER AGENT SERVICES
AUF Service Company receives fees from State Street Bank and Trust
Company ("State Street"), the Fund's transfer agent, for services performed
under a Sub-Transfer Agency Agreement dated August 21, 1995. Pursuant to that
Agreement, AUF Service Company provides certain transfer agent, dividend
disbursing agent, and other services to the Fund and its shareholders who
purchase shares of the Fund through facilities made available to Virginia
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<PAGE>
Power and North Carolina Power customers. State Street pays AUF Service Company
a fee at the annual rate of 0.10% of the Fund's average net assets attributable
to shares held such shareholders. For the period August 21, 1995 to December 31,
1995, these fees amounted to $56,040.
EXPENSE REIMBURSEMENT
AUF Service Company (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, AUF Service Company
and Mentor incurred expenses of $118,162 and $66,941 respectively, for the Fund
during the 1995 fiscal year. The expense limitation does not apply to
extraordinary expenses of the Fund.
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")), from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, Commonwealth receives brokerage and research services and other
similar services from many broker-dealers with which it places the Fund's
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by Commonwealth's managers and analysts. Where the services
referred to above are not used exclusively by Commonwealth for research
purposes, Commonwealth, based upon its own allocations of expected use, bears
that portion of the cost of these services which directly relates to its
non-research use. Some of these services are of value to Commonwealth and its
affiliates
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in advising various of its clients (including the Fund), although not all of
these services are necessarily useful and of value in managing the Fund.
Commonwealth place all orders for the purchase and sale of portfolio
investments for the Fund and buys and sells investments for the Fund through a
substantial number of brokers and dealers. Commonwealth seeks the best overall
terms available for the Fund, except to the extent it may be permitted to pay
higher brokerage commissions as described below. In doing so, Commonwealth,
having in mind the Fund's best interests, considers all factors it deems
relevant, including, by way of illustration, price, the size of the transaction,
the nature of the market for the security or other investment, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved, and the quality of service rendered by the broker-dealer in other
transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, the Commonwealth may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to
Commonwealth an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer would have charged
for effecting that transaction. Commonwealth's authority to cause the Fund to
pay any such greater commissions is also subject to such policies as the Board
of Directors may adopt from time to time. Commonwealth does not currently intend
to cause the Fund to make such payments. It is the position of the staff of the
Securities and Exchange Commission that Section 28(e) does not apply to the
payment of such greater commissions in "principal" transactions. Accordingly,
Commonwealth will use its best efforts to obtain the best overall terms
available with respect to such transactions, as described above.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to such other policies as the Board of
Directors may determine, Commonwealth may consider sales of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
The Board of Directors has determined that portfolio transactions for
the Fund may be effected through Wheat, First Securities, Inc. ("Wheat"), an
affiliate of Commonwealth. The Trustees have adopted certain policies
incorporating the standards of Rule 17e-l issued by the SEC under the 1940 Act
which requires, among other things, that the commissions paid to Wheat must be
reasonable and fair compared to the commissions, fees, or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time.
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<PAGE>
BROKERAGE COMMISSIONS
The Fund paid brokerage commissions in the following amounts during the
periods set forth below:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1993 1994 1995
------------ ------------ ---------
$226,666 $145,900 $162,737
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value per share each day the New York
Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays, and the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving, and
Christmas.
Securities for which market quotations are readily available are valued
at prices which, in the opinion of the Board of Directors or Commonwealth, most
nearly represent the market values of such securities. Currently, such prices
are determined using the last reported sale price or, if no sales are reported
(as in the case of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are stated at the mean
between the last reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value following procedures approved by the Board of Directors. Liabilities
are deducted from the total, and the resulting amount is divided by the number
of shares of the Fund outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Board of Directors, which determine valuations for normal, institutional-size
trading units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of the Fund's shares are computed as of such times. Also, because of the amount
of time required to collect and process trading information as to large numbers
of securities issues, the values of certain securities (such as convertible
bonds, U.S. Government securities, and tax-exempt securities) are determined
based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
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<PAGE>
Occasionally, events affecting the value of such securities may occur between
such times and the close of the Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value following procedures approved by the Board of
Directors.
TAX STATUS
The Fund intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Fund will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders.
In order to qualify as a "regulated investment company," the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or other disposition
of certain assets (including stock and securities) held less than three months;
(c) diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets consists of cash, cash
items, U.S. Government Securities, and other securities limited generally with
respect to any one issuer to not more than 5% of the total assets of the Fund
and not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any issuer (other than U.S. Government Securities). In order to receive the
favorable tax treatment accorded regulated investment companies and their
shareholders, moreover, the Fund must in general distribute at least 90% of its
interest, dividends, net short-term capital gain, and certain other income each
year.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. Each Portfolio
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November, or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
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<PAGE>
The Fund is required to withhold 31% of all income dividends and capital
gain distributions, and 31% of the gross proceeds of all redemptions of Fund
shares, in the case of any shareholder who does not provide a correct taxpayer
identification number, about whom the Fund is notified that the shareholder has
under reported income in the past, or who fails to certify to the Fund that the
shareholder is not subject to such withholding. Tax-exempt shareholders are not
subject to these back-up withholding rules so long as they furnish the Fund with
a proper certification.
Foreign currency-denominated securities and related hedging
transactions. The Fund's transactions in foreign currencies, foreign
currency-denominated debt securities, and certain foreign currency options,
futures contracts, and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of the debt
and equity securities of foreign corporations, the Fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns for
their pro rata portion of qualified taxes paid by the Fund to foreign countries.
In such a case, shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by the Fund may be
subject to certain limitations imposed by the Code, as a result of which a
shareholder may not get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax returns may claim a
credit (but no deduction) for such foreign taxes.
Investment by the Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however, this tax
can be avoided by making an election to mark such investments to market annually
or to treat the passive foreign investment company as a "qualified electing
fund."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions. Dividends and distributions also may be subject to state
and federal taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state or local taxes. The foregoing
discussion relates solely to U.S. federal income tax law. Non-U.S. investors
should consult their tax advisers concerning the tax consequences of ownership
of shares of the Fund, including the possibility that distributions may be
subject to a 30% United States withholding tax (or a reduced rate of withholding
provided by treaty).
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<PAGE>
DISTRIBUTION
Project America, Inc. serves as principal distributor of the Fund under
a Distribution Agreement dated February 13, 1992. Pursuant to the Distribution
Agreement, Project America agrees to bear the expenses of printing any
promotional or sales literature used by Project America or furnished by Project
America to dealers in connection with the public offering of the Fund's shares,
including expenses of advertising in connection with such public offerings.
Project America has not undertaken to sell any specified number of shares of the
Fund. Project America receives no compensation from the Fund for the services it
provides under the Distribution Agreement.
The Fund or Project America may terminate the Distribution Agreement on
sixty days' written notice without penalty. The Distribution Agreement will
terminate automatically in the event of its assignment.
PERFORMANCE INFORMATION
Total return is determined by calculating the actual investment return
on a $1,000 investment in the Fund over the one-year period and the life of the
Fund. Total return may also be presented for other periods. Total return
calculations assume reinvestment of all Fund distributions at net asset value on
their respective reinvestment dates. The total return for the one-year period
ending December 31, 1995 and the average annual total return for the life of the
Fund was 32.30% and 10.85%, respectively.
The Fund's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by the Fund during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the net asset
value per share on the last day of the base period. The result is annualized on
a compounding basis to determine the yield. For this calculation, interest
earned on debt obligations held by the Fund is generally calculated using the
yield to maturity (or first expected call date) of such obligations based on
their market values (or, in the case of receivables-backed securities such as
GNMA's, based on cost). Dividends on equity securities are accrued daily at
their stated dividend rates. The yield for the Fund for the thirty-day period
ended December 31, 1995 was 3.86%.
ALL DATA FOR THE FUND ARE BASED ON PAST PERFORMANCE AND DO NOT PREDICT
FUTURE RESULTS.
Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the Fund, and other
investment companies, performed in
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<PAGE>
specified time periods. Agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the Fund may distribute
these comparisons to its shareholders or to potential investors. THE AGENCIES
LISTED BELOW MEASURE PERFORMANCE BASED ON THE BASIS OF THEIR OWN CRITERIA RATHER
THAN ON THE BASIS OF THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED ABOVE.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated
by Lipper, reflecting generally changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of
performance periods, for example year-to-date, 1-year, 5-year, and
10-year performance. Lipper classifies mutual funds by investment
objective and asset category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a month. the
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent a fund's historical risk/reward
ratio relative to other funds with similar objectives. The performance
factor is a weighted-average assessment of the Portfolio's 3-year,
5-year, and 10-year total return performance (if available) reflecting
deduction of expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the fund. The
ratings are derived from a purely quantitative system that does not
utilize the subjective criteria customarily employed by rating agencies
such as Standard & Poor's Corporation and Moody's Investor Service, Inc.
WEISENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year performance. Mutual funds are ranked in
general categories (e.g., international bond, international equity,
municipal bond, and maximum capital gain). Weisenberger rankings do not
reflect deduction of sales charges or fees.
Independent publications may also evaluate the Fund's performance.
Certain of those publications are listed below. The Fund may distribute
evaluations by or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of information provided
by these publications.
BUSINESS WEEK publishes mutual fund rankings in its Investment Figures
of the Week column. The rankings are based on 4-week and 52-week total
return reflecting changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales charges.
Portfolios are not categorized; they compete in a large universe of over
2,000 funds. The source for rankings is data generated by Morningstar,
Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings on a daily
basis. The rankings are depicted as the top 25 funds in a given
category. The categories are based loosely on
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<PAGE>
the type of fund, e.g., growth funds, balanced funds, U.S. government
funds, GNMA funds, growth and income funds, corporate bond funds, etc.
Performance periods for sector equity funds can vary from 4 weeks to 39
weeks; performance periods for other fund groups vary from 1 year to 3
years. Total return performance reflects changes in net asset value and
reinvestment of dividends and capital gains. The rankings are based
strictly on total return. They do not reflect deduction of any sales
charges Performance grades are conferred from A+ to E. An A+ rating
means that the fund has performed within the top 5% of a general
universe of over 2000 funds; an A rating denotes the top 10%; an A- is
given to the top 15%, etc.
BARRON'S periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical
Services. The Lipper total return data reflects changes in net asset
value and reinvestment of distributions, but does not reflect deduction
of any sales charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example) to long-term
periods (five-year or ten-year performance, for example). Barron's
classifies the funds using the Lipper mutual fund categories, such as
Capital Appreciation Portfolios, Growth Portfolios, U.S. Government
Portfolios, Equity Income Portfolios, Global Portfolios, etc.
Occasionally, Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with assets in excess
of $25 million; "small funds" may be those with less than $25 million in
assets.
THE WALL STREET JOURNAL publishes its Mutual Portfolio Scorecard on a
daily basis. Each Scorecard is a ranking of the top-15 funds in a given
Lipper Analytical Services category. Lipper provides the rankings based
on its total return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales charges. The
Scorecard portrays 4-week, year-to-date, one-year and 5-year
performance; however, the ranking is based on the one-year results. The
rankings for any given category appear approximately once per month.
FORTUNE magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Portfolios are
placed in stock or bond fund categories (for example, aggressive growth
stock funds, growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds etc.), with the top-10 stock funds and the
top-5 bond funds appearing in the rankings. The rankings are based on 3-
year annualized total return reflecting changes in net asset value and
reinvestment of distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to reflect the
risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings on a database
of funds tracked for performance by Lipper Analytical Services. The
funds are placed in 23 stock or bond fund categories and analyzed for
five-year risk adjusted return. Total return reflects changes in net
asset value and reinvestment of all dividends and capital gains
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<PAGE>
distributions and does not reflect deduction of any sales charges.
Grades are conferred (from A to E): the top 20% in each category receive
an A, the next 20% a B, etc. To be ranked, a fund must be at least one
year old, accept a minimum investment of $25,000 or less and have had
assets of at least $25 million as of a given date.
FINANCIAL WORLD publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios are
categorized as to type, e.g., balanced funds, corporate bond funds,
global bond funds, growth and income funds, U.S. government bond funds,
etc. To compete, funds must be over one year old, have over $1 million
in assets, require a maximum of $10,000 initial investment, and should
be available in at least 10 states in the United States. The funds
receive a composite past performance rating, which weighs the
intermediate - and long-term past performance of each fund versus its
category, as well as taking into account its risk, reward to risk, and
fees. An A+ rated fund is one of the best, while a D- rated fund is one
of the worst. The source for Financial World rating is Schabacker
investment management in Rockville, Maryland.
FORBES magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds are
categorized by type, including stock and balanced funds, taxable bond
funds, municipal bond funds, etc. Data sources include Lipper Analytical
Services and CDA Investment Technologies. The ratings are based strictly
on performance at net asset value over the given cycles. Portfolios
performing in the top 5% receive an A+ rating; the top 15% receive an A
rating; and so on until the bottom 5% receive an F rating. Each fund
exhibits two ratings, one for performance in "up" markets and another
for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three-
and five-year total return performance reflecting changes in net asset
value and reinvestment of dividends and capital gains and not reflecting
deduction of any sales charges. Portfolios are ranked by tenths: a rank
of 1 means that a fund was among the highest 10% in total return for the
period; a rank of 10 denotes the bottom 10%. Portfolios compete in
categories of similar funds -- aggressive growth funds, growth and
income funds, sector funds, corporate bond funds, global governmental
bond funds, mortgage-backed securities funds, etc. Kiplinger's also
provides a risk-adjusted grade in both rising and falling markets.
Portfolios are graded against others with the same objective. The
average weekly total return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk profile of
the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch Carre
& Co., a Boston research firm. Over 2000 funds are tracked and divided
into 10 equity, taxable bond and tax-free bond categories. Portfolios
compete within the 10 groups and three broad categories. The
B-26
<PAGE>
OPI is a number from 0-100 that measures the relative performance of
funds at least three years old over the last 1, 3, 5 and 10 years and
the last six bear markets. Total return reflects changes in net asset
value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges.
Results for the longer periods receive the most weight.
THE 100 BEST MUTUAL PORTFOLIOS YOU CAN BUY (1992), authored by Gordon K.
Williamson. The author's list of funds is divided into 12 equity and
bond fund categories, and the 100 funds are determined by applying four
criteria. First, equity funds whose current management teams have been
in place for less than five years are eliminated. (The standard for bond
funds is three years.) Second, the author excludes any fund that ranks
in the bottom 20 percent of its category's risk level. Risk is
determined by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill. Third, a fund
must have demonstrated strong results for current three-year and
five-year performance. Fourth, the fund must either possess, in Mr.
Williamson's judgment, "excellent" risk-adjusted return or "superior"
return with low levels of risk. Each of the 100 funds is ranked in five
categories: total return, risk/volatility, management, current income
and expenses. The rankings follow a five-point system: zero designates
"poor"; one point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior"; and five
points mean "excellent."
OFFICERS OF COMMONWEALTH
W. HANCE WEST, JR., CFA MANAGING DIRECTOR, TOTAL RETURN PORTFOLIO
MANAGER
Mr. West has eight years of investment management experience. Mr. West
serves as co- manager for the Mentor Income Fund (formerly RAC Income Fund), a
$130 million closed-end bond fund. He holds his undergraduate degree in
accounting from Virginia Polytechnic Institute and his graduate degree in
business from University of Rochester.
P. MICHAEL JONES, CFA MANAGING DIRECTOR, INCOME PORTFOLIO MANAGER
Mr. Jones has ten years of investment management experience. Mr. Jones is
responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He earned his undergraduate degree from the
College of William and Mary.
STEVEN C. HENDERSON ASSOCIATE VICE PRESIDENT, INCOME PORTFOLIO
MANAGER
Mr. Henderson has six years of investment management experience. He
has an undergraduate degree from the University of Richmond and a masters in
business administration from George Washington University.
STEPHEN R. MCCLELLAND VICE PRESIDENT, TOTAL RETURN PORTFOLIO MANAGER
Mr. McClelland has five years of investment management experience, all of which
have been at Commonwealth. He is a Certified Public Accountant and received his
undergraduate degree in
B-27
<PAGE>
accounting from Iowa State University and his graduate business degree from
Virginia Commonwealth University.
KEITH WANTLING ASSOCIATE VICE PRESIDENT, SENIOR RESEARCH ANALYST
Mr. Wantling has four years of experience. Mr. Wantling performs analysis and
screening for credit sensitive private label mortgage-backed securities and
directs the firm's portfolio analysis effort. He holds his undergraduate degree
in accounting information systems from Virginia Polytechnic Institute.
R. PRESTON NUTTALL, CFA MANAGING DIRECTOR, DIRECTOR OF CASH MANAGEMENT
AND PORTFOLIO MANAGER
Mr. Nuttall has more than thirty years of investment management experience.
Prior to Commonwealth, he led short-term fixed-income management for fifteen
years at Capitoline Investment Services, Inc. He has his undergraduate degree in
economics from the University of Richmond and his graduate degree in finance
from the Wharton School at the University of Pennsylvania.
HUBERT R. WHITE III VICE PRESIDENT, PORTFOLIO MANAGER
Mr. White has eleven years of investment management experience. Prior to joining
Commonwealth, he served for five years as portfolio manager with Capitoline
Investment Services. He has his undergraduate degree in business from the
University of Richmond.
KATHRYN T. ALLEN VICE PRESIDENT, PORTFOLIO MANAGER
Ms. Allen has fourteen years of investment management experience and specializes
in tax-free trades. Prior to joining Commonwealth, Ms. Allen was portfolio
group manager at PNC Institutional Management Corporation. She has her
undergraduate degree in commerce and business administration from the University
of Alabama.
JOHN G. DAVENPORT, CFA MANAGING DIRECTOR COMMONWEALTH ADVISORS
CHIEF EQUITY OFFICER AND PORTFOLIO MANAGER
Mr. Davenport has eleven years of investment management experience. He joined
Commonwealth after heading equity research for Lowe, Brockenbrough, Tierney, &
Tattersall. He earned his undergraduate business degree from the University of
Richmond and his graduate degree in business from the University of Virginia.
RICHARD L. RICE, CFA RESEARCH ANALYST
Mr. Rice has twenty-five years' experience in the securities industry. Prior to
joining Commonwealth, he was a partner in the equity management software firm,
Parata Analytics Research, which was acquired by Commonwealth. He has his
undergraduate degree from the University of Florida and has completed graduate
work at Georgia State University.
B-28
<PAGE>
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri, 64105, acts as the custodian for the Fund's portfolio securities and
cash. In this capacity, it maintains certain financial and accounting books and
records pursuant to agreements with the Fund.
INDEPENDENT AUDITORS
Deloitte & Touche L.L.P., 707 East Main Street, Richmond, Virginia
23219, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
RATINGS
The rating services' descriptions of corporate bonds are:
MOODY'S INVESTORS SERVICE, INC.:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
B-29
<PAGE>
STANDARD & POOR'S:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
(Bullet) liquidity ratios are adequate to meet cash requirements;
(Bullet) long-term senior debt is rated "A" or better;
(Bullet) the issuer has access to at least two additional channels of
borrowing;
(Bullet) basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
(Bullet) typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and
(Bullet) the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
B-30
<PAGE>
(Bullet) evaluation of the management of the issuer;
(Bullet) economic evaluation of the issuer's industry or industries and
an appraisal of speculative-type risks which may be inherent in
certain areas;
(Bullet) evaluation of the issuer's products in relation to competition
and customer acceptance;
(Bullet) liquidity;
(Bullet) amount and quality of long-term debt;
(Bullet) trend of earnings over a period of ten years;
(Bullet) financial strength of parent company and the relationships
which exist with the issuer; and
(Bullet) recognition by the management of obligations which may be
present or may arise as a result of public interest questions
and preparations to meet such obligations.
NOTE RATINGS:
MIG1/VMIG1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A-1 - This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
B-31
<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>
<CAPTION>
<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
</TABLE>
<TABLE>
<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
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
Part A
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C> <C>
1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary; Financial
Highlights
4. General Description of Registrant.............................. Cover Page; Investment objective
and policies; Other investment
practices
5. Management of the Fund......................................... Management of the Fund; The
Fund; Transfer and dividend agent
services
5A. Management's Discussion of Fund Performance.................... Contained in the Annual Report of
the Registrant
6. Capital Stock and Other
Securities................................................... Management of the Fund; Taxes;
Method of investing payments and
distributions; Your rights in
the Fund and under the Plan;
Tax-Sheltered Retirement Plans;
The Fund
7. Purchase of Securities Being
Offered...................................................... Management of the Fund; How the
Fund can help you
8. Redemption or Repurchase....................................... How to invest in the Fund;
Redemption of shares
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
