[EAGLE LOGO]
Dear Shareholder:
The year 1996 was a year of changes for America's Utility Fund -- changes
designed to position your Fund to better compete with its peers and the market
in general in years to come.
Of greatest significance was a positive vote by shareholders to allow more
investment vehicles to be utilized in management of the Fund's portfolio. We
expect to see the full impact of this change in 1997. The Fund's Management Team
addresses this issue in the letter on the following pages.
In late 1996, we communicated to shareholders a change in the minimum monthly
installment purchase to $40 per month and an increase in the overall account
minimum to $1,000 by September, 1999. After four years in business, we found
that we had an extraordinarily large number of very small accounts which had not
continued to invest in the Fund. These accounts increase the Fund's expenses but
do not generate enough revenue to cover the fixed costs of servicing an account.
This is detrimental to all Fund shareholders, contributing to high costs and a
higher expense ratio. The full impact of this restructuring will take several
years, since we have given all shareholders three years to increase their
account balance to $1,000. For the long run, we felt the changes were necessary
to the Fund's continued competitiveness.
The past year was a difficult year for all investors. While the broad market
continued to advance, investors could not help but wonder if or when the market
would experience a major correction. Investors were concerned about investing
"at the top." In spite of this skepticism, America's Utility Fund's major sales
effort in September and October resulted in more than 1400 new shareholders
before the end of 1996. Likewise, our existing customer base continued to stick
with the Fund, a clear statement of their desire to invest for the long run.
The upcoming year, we believe, may hold good news for utility investors. The
price/earnings ratio of utilities are currently at a substantial discount to
stocks in the broader market. This has the potential to bode well for utility
investments. As investors search for good values in what is generally considered
an over-valued market, utilities may provide that value. Increased interest in
the sector would help to raise utility valuations to be more in line with the
market.
Secondly, we would remind shareholders of the potential ability of utility
investments to add value in a declining market and interest-rate environment. If
the longest bull market in history comes to an end in the upcoming year,
utilities, with their steady growth potential and consistent dividend payout,
may prove to be a good defensive investment choice for shareholders.
As in the past, we encourage shareholders to stick to a plan to provide for
their futures by investing for the long-term. Thank you for your continued
participation in America's Utility Fund.
Sincerely,
/s/ LINWOOD R. ROBERTSON
Linwood R. Robertson
CEO and President
<PAGE>
DOLLAR-COST AVERAGING
More and more, investors are using dollar-cost averaging to avoid trying to
"time" investment purchases or sales.
America's Utility Fund, with its dollar-cost averaging installment payment
option, has provided shareholders with a way to turn market uncertainty to their
advantage.*
Dollar-cost averaging means you simply invest the same amount of money at
evenly spaced time periods. It doesn't matter whether the market moves up or
down while you're investing.
The chart below illustrates how dollar-cost averaging works.** Assume you
decide to invest $30 a month in a mutual fund over the next 12 months and the
fund price fluctuates.
When the price of the fund is low, you buy more shares; when the price is
high you buy fewer shares. This can potentially result in an average cost per
share that is less than the average share price.
In the illustration provided below, the average cost of shares purchased is
$10.91. Had you made a lump-sum investment in January, the cost would have been
$15 per share.
So rather than trying to figure out the best time to buy and sell, you may
want to invest on a periodic basis and avoid the highs and lows.
America's Utility Fund offers investors this option through our monthly
installment plan with a $40 per month minimum.
<TABLE>
<CAPTION>
SHARES CUMULATIVE SHARES TOTAL
MONTH SHARE COST PURCHASED PURCHASED INVESTMENT
<S> <C> <C> <C> <C>
JANUARY $15.00 2.0 2.0 $ 30.00
FEBRUARY $20.00 1.5 3.5 $ 60.00
MARCH $15.00 2.0 5.5 $ 90.00
APRIL $12.00 2.5 8.0 $ 120.00
MAY $10.00 3.0 11.0 $ 150.00
JUNE $ 8.00 3.8 14.8 $ 180.00
JULY $10.00 3.0 17.8 $ 210.00
AUGUST $10.00 3.0 20.8 $ 240.00
SEPTEMBER $10.00 3.0 23.8 $ 270.00
OCTOBER $ 8.00 3.8 27.5 $ 300.00
NOVEMBER $10.00 3.0 30.5 $ 330.00
DECEMBER $12.00 2.5 33.0 $ 360.00
AVERAGE COST OF
SHARES PURCHASES $10.91
COST OF LUMP-SUM
PURCHASE IN JANUARY $15.00
</TABLE>
*This method of investing involves continous investment in a security
regardless of fluctuating price levels and you should consider your financial
ability to continue purchases through periods of low price levels. It won't
assure a profit or protect you from loss in declining markets or against loss if
you stop the program when the value of your account is less than the cost of the
shares you bought.
** This hypothetical example does not represent the results of an
installment purchase in America's Utility Fund. America's Utility Fund may
perform better or worse than this example.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
America's Utility Fund Management Team
For the year ended December 31, 1996, America's Utility Fund provided a total
return of 5.5% including capital appreciation and dividend income. Although
performance was disappointing relative to the strong stock market in general and
the Fund's unusually-high 1995 return of 32.3%, your Fund did well compared to
utility stocks in general.* The Standard & Poor's Utility Index, for example,
reported a 3.1% total return for 1996.**
We believe that three factors were primarily responsible for holding back
utility performance last year:
(1) The strength of the market in a healthy economy diverted investors from
traditionally defensive investments, which are less sensitive to an economic
downturn and provide consistent high dividend income;
(2) Concerns related to restructuring in the wake of deregulation --
particularly, concern about the capacity to recover investments in regulated
assets that could be devalued in the industry's transition to a competitive
marketplace (so-called "stranded" assets) -- dampened investor interest in
electric utilities;
(3) Prices of high-dividend-yield stocks tended to be negatively-affected by
the three-quarters of a percentage-point rise in long-term US Treasury bond
yields during the year.
On the regulatory front, developments at the federal and state levels in 1996
were generally positive for shareholders and ratepayers from a long-term
perspective. Three states adopted electric utility restructuring legislation
during the year (California, Rhode Island, and Pennsylvania), while most others
remain in various stages of investigation. Importantly, in addressing the issue
of stranded costs, restructuring proposals have included the authorization of
"revenue bonds" or "rate-reduction bonds" which will enable utilities to recover
prudent investments over time AND provide for a modest rate reduction for
residential and small commercial customers.
The steady trend toward deregulation prompted another year of high merger and
acquisition activity as electric companies prepared for a rapidly changing,
increasingly competitive environment. Local and long-distance telephone
companies are now experiencing a similar transition. These trends underscore the
need for continued emphasis on selecting high-quality, well-managed companies
for the Fund.
LOOKING AHEAD
We are encouraged by a number of factors which should favorably influence
your Fund in the coming year. First, last year's approval of a wider range of
investment vehicles enables us to diversify into domestic and foreign stocks
outside of traditional utility industries, in an effort to enhance the growth
characteristics of the Fund. We have already established initial positions in
these areas. Second, with inflation at a low level in an aging economic
expansion, a reasonable prospect for lower long-term interest rates would tend
to support higher prices for interest-sensitive funds. Slower economic growth
could also lead to disappointments in corporate profits after several years of
strong growth, and set the stage for renewed interest in defensive investments.
Finally, defensive funds are very attractively valued compared to the overall
market. For example, the dividend yield (i.e. dividend divided by price) of the
S&P Utility Index relative to the S&P 500 Index has reached an extraordinarily
high level.*** We believe that this valuation disparity may be resolved to the
benefit of utility investors.
*Past performance is no guarantee of future results. Your investment
return and principal value will fluctuate so that when shares are redeemed, they
may be worth more or less than the original cost. Mutual funds are not
obligations of, or guaranteed by, any bank, and they are not federally insured.
**The S&P Utilities Index is one of four broad sectors in the S&P 500
Index and includes all the utility stocks in the S&P 500 Index. It is a
market-value weighted index (stock price times shares outstanding), with each
stock affecting the Index in proportion to its market value. This Index,
calculated by Standard & Poor's, is a total return index with dividends
reinvested. Investors may not invest in an index. The S&P Utilities Index is
used as the benchmark for the performance of America's Utility Fund (AUF)
because it is identified by the investment advisor as the index that most
accurately reflects the management style and portfolio composition of AUF.
***The Standard & Poor's Index (S&P 500) is an unmanaged,
market-value-weighted index of 500 widely held domestic common stocks. An
unmanaged index does not reflect expenses and may not correspond to the
performance of a managed portfolio in which expenses are incurred. Investors
cannot invest in indexes.
<PAGE>
Average Annual Total Returns
for the Periods Ended December 31, 1996
One Year Since Inception (5/5/92)*
5.46% 9.67%
SEC current yield as of December 31, 1996 4.08%**
5/92 10,000 9,985
6/92 10,170 10,122
9/92 10,892 10,919
12/92 11,190 11,195
3/93 12,235 12,402
6/93 12,642 12,696
9/93 13,198 13,586
12/93 12,679 12,811
3/94 11,290 11,753
6/94 10,728 11,750
9/94 11,141 11,806
12/94 11,019 11,794
3/95 11,759 12,607
6/95 12,479 13,544
9/95 13,485 15,063
12/95 14,577 16,644
3/96 14,507 15,852
6/96 14,839 16,652
9/96 14,340 16,090
12/96 15,373 17,164
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operation of America's Utility Fund from the date of inception
5/5/92 through 12/31/96.
** SEC current yield is calculated by dividing the net investment income
per share for the 30 days ended 12/31/96 by the offering price per share
on that date. The figure is then compounded and annualized.
*** Represents a hypothetical investment of $10,000 in America's Utility
Fund. Performance assumes the reinvestment of all dividends and
distributions.
~ The S&P Utilities Index is one of four broad sectors in the S&P 500
Index and includes all the utility stocks in the S&P 500 Index. It is a
market-value weighted index (stock price times shares outstanding), with
each stock affecting the Index in proportion to its market value. This
Index, calculated by Standard & Poor's, is a total return index with
dividends reinvested. Investors may not invest in an index. The S&P
Utilities Index is used as the benchmark for the performance of
America's Utility Fund (AUF) because it is identified by the investment
advisor as the index that most accurately reflects the management style
and portfolio composition of AUF.
This material must be preceded or accompanied by a current Prospectus for
America's Utility Fund, which contains complete information regarding fees,
sales charges, and expenses. Please read it carefully before you invest or send
money.
AMERICA'S UTILITY FUND, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Market Value
Shares Common Stocks (Note 2)
- ------------ -------------------------------- ------------
<C> <S> <C>
PUBLIC UTILITY - ELECTRIC -
58.47%
132,000 Allegheny Power Systems, Inc. $ 4,009,500
182,000 Central and Southwest
Corporation 4,663,750
49,000 Chilgener S.A.* 1,022,875
145,000 Detroit Energy Company 4,694,375
211,000 DPL, Inc. 5,169,500
139,950 DQE, Inc. 4,058,550
65,000 Duke Power Company 3,006,250
125,000 Eastern Utilities Associates
Company 2,171,875
20,500 Empressa Nacional Electric* 1,435,000
74,000 Enron Corporation 3,191,250
95,500 General Public Utilities, Inc. 3,211,188
157,000 IPALCO Enterprises, Inc. 4,278,250
154,900 LG&E Energy Corporation 3,795,050
34,000 Nalco Chemical Company 1,228,250
113,800 NIPSCO Industries, Inc. 4,509,325
88,200 Northern States Power Company 4,046,175
218,700 Ohio Edison Company 4,975,425
209,000 Potomac Electric Power Company 5,381,750
99,800 Public Service Company of
Colorado 3,879,725
89,700 SCANA Corporation 2,399,475
203,000 Southern Company 4,592,875
175,200 TECO Energy Company 4,226,700
145,500 Western Resources, Inc. 4,492,312
------------
84,439,425
PUBLIC UTILITY - NATURAL GAS -
9.16%
114,000 Brooklyn Union Gas Company 3,434,250
78,000 Nicor, Inc. 2,788,500
128,000 Pacific Enterprise Company 3,888,000
85,000 Questar Corporation 3,123,750
------------
13,234,500
TELECOMMUNICATIONS - 20.46%
55,000 AT&T Corporation 2,392,500
83,000 Ameritech Corporation 5,031,875
70,000 Bell Atlantic Corporation 4,532,500
5,800 British Telecom PLC* 398,025
106,000 GTE Corporation 4,823,000
126,000 MCI Communications Corporation 4,118,625
90,400 SBC Communications Corporation 4,678,200
72,000 Sprint Corporation 2,871,000
10,000 Telefonica De Espana* 692,500
------------
29,538,225
Total Common Stocks - 88.09%
(cost $113,057,880) 127,212,150
------------
</TABLE>
<PAGE>
AMERICA'S UTILITY FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
Shares or Market Value
Face Amount (Note 2)
- ------------ ------------
<C> <S> <C>
PREFERRED STOCKS - 0.35%
20,000 Bankamerica Trust (cost
$500,000) $ 500,000
------------
CORPORATE BONDS - 9.08%
$2,000,000 Appalachian Power Company,
7.38%, 8/15/02 2,045,870
1,250,000 Duke Power Company, 8.00%,
11/1/99 1,304,687
2,000,000 Pacific Gas & Electric Company,
5.88%, 10/1/05 1,862,500
2,250,000 Pacificorp, 6.75%, 4/1/05 2,217,528
2,000,000 Texas Utilities Electric
Company, 8.25%, 4/1/04 2,127,500
2,000,000 West Texas Utilities, 7.00%,
10/1/04 2,012,500
1,500,000 Wisconsin Public Service, 7.30%,
10/1/02 1,549,242
------------
Total Corporate Bonds
(cost $13,203,214) 13,119,827
------------
REPURCHASE AGREEMENTS - 2.62%
Dated 12/31/96, 6.80%, due
1/2/97, collateralized by
$3,866,615
Federal National Mortgage
Associaton, 7.50%, 6/1/26
3,789,044 (cost $3,789,044) 3,789,044
------------
TOTAL INVESTMENTS - 100.14%
(COST $130,550,138) 144,621,021
OTHER ASSETS LESS LIABILITIES -
(0.14%) (205,063)
------------
NET ASSETS - 100.00% $144,415,958
------------
------------
</TABLE>
*American Depository Receipts.
See notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at market value --
identified cost $130,550,138 (Note 2) $144,621,021
Receivables
Dividends and interest receivable 783,656
Capital shares sold 133,130
------------
Total assets 145,537,807
------------
LIABILITIES
Payables
Investments purchased 445,488
Capital shares redeemed 104,902
Dividends payable 109,276
Accrued expenses and other liabilities 462,183
------------
Total liabilities 1,121,849
------------
NET ASSETS $144,415,958
------------
------------
Net Assets
Additional paid-in capital $129,584,065
Undistributed net investment income 170,657
Accumulated net realized gain on investment
transactions 590,353
Net unrealized appreciation of investments 14,070,883
------------
Net Assets $144,415,958
Shares outstanding 5,760,478
Net Asset Value Per Share $ 25.07
</TABLE>
<PAGE>
AMERICA'S UTILITY FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of withholding taxes) $ 6,354,982
Interest 1,393,653
-----------
Total investment income (Note 2) 7,748,635
-----------
EXPENSES
Administrative service fees (Note 5) 617,040
Shareholder services fees (Note 5) 372,763
Investment advisor fees (Note 5) 352,144
Shareholder reports 350,973
Transfer agent fees (Note 5) 149,105
Transfer agent related expenses 91,867
Directors' fees 40,675
Custody fees 23,592
Registration fees 13,016
Legal fees 12,202
Audit fees 8,949
Other 10,983
-----------
Total expenses 2,043,309
-----------
Deduct
Expenses assumed by administrative services
company (Note 5) (144,093)
-----------
Net expenses 1,899,216
-----------
Net investment income 5,849,419
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 5,267,015
Change in unrealized appreciation or
depreciation of investments (4,116,828)
-----------
Net realized and unrealized gain on
investments 1,150,187
-----------
Net increase in net assets resulting from
operations $ 6,999,606
-----------
-----------
</TABLE>
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
[CAPTION]
<TABLE>
<S> <C> <C>
1996 1995
------------ ------------
<S> <C> <C>
NET INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income $ 5,849,419 $ 6,329,409
Net realized gain on investments 5,267,015 1,297,943
Change in unrealized
appreciation (depreciation) of
investments (4,116,828) 33,092,284
------------ ------------
Increase in net assets resulting
from operations 6,999,606 40,719,636
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (5,725,433) (6,298,780)
CAPITAL SHARE TRANSACTIONS (NOTE
4)
Net proceeds from sale of shares 15,469,548 18,986,502
Reinvested distributions 5,280,490 5,908,003
Cost of shares redeemed (40,438,611) (21,494,033)
------------ ------------
Change in net assets from
capital share transactions (19,688,573) 3,400,472
------------ ------------
Increase (decrease) in net assets (18,414,400) 37,821,328
Net Assets
Beginning of year 162,830,358 125,009,030
------------ ------------
End of year $144,415,958 $162,830,358
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92(a)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 24.72 $ 19.50 $ 23.54 $ 21.95 $ 20.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.98 0.96 0.96 0.91 0.63
Net realized and unrealized gain (loss) on investments 0.33 5.22 (4.04) 2.00 1.80
-------- -------- -------- -------- -----------
Total from investment operations 1.31 6.18 (3.08) 2.91 2.43
LESS DISTRIBUTIONS
Dividends from net investment income (0.96) (0.96) (0.96) (0.92) (0.67)
Distributions from net realized capital gains 0.00 0.00 0.00 (0.40) (0.35)
-------- -------- -------- -------- -----------
Total distributions (0.96) (0.96) (0.96) (1.32) (1.02)
-------- -------- -------- -------- -----------
NET ASSET VALUE, END OF PERIOD $ 25.07 $ 24.72 $ 19.50 $ 23.54 $ 21.95
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Total Return 5.46% 32.30% (13.10%) 13.26% 18.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 144.42 $ 162.83 $ 125.01 $ 133.53 $ 43.67
Ratio of expenses to average net asets 1.27% 1.21% 1.21% 1.21% 1.21%
Ratio of expenses to average net assets before expense
reductions 1.36% 1.34% 1.33% 1.41% 1.41%
Ratio of net investment income to average net assets 3.90% 4.40% 4.66% 4.19% 4.99%
Portfolio turnover rate 24.05% 27.77% 28.85% 21.20% 24.16%
Average commission rate on portfolio transactions $ 0.0680
</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, 1996
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 ("AUFSC"), for $10,000,000. The Fund commenced
sales to the public on May 5, 1992.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Fund.
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
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. 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. No provision for federal income taxes has been made since
it is the Fund's policy to comply with the provisions applicable to regulated
investment companies under the Internal Revenue Code and to distribute to its
shareholders within the allowable time limit substantially all taxable income
and realized capital gains.
DISTRIBUTIONS. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Accordingly, periodic
reclassifications are made within the Fund's capital accounts to reflect income
and gains available for distribution under income tax regulations.
DIVIDENDS. 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 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 $41,781,566 and $33,722,045, respectively. Net unrealized appreciation at
December 31, 1996, based on the cost of securities for federal income tax
purposes of $130,550,138 is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $16,225,512
Gross unrealized depreciation (2,154,629)
-----------
Net unrealized appreciation $14,070,883
-----------
-----------
</TABLE>
NOTE 4: CAPITAL SHARE TRANSACTIONS
As of December 31, 1996 there were 500,000,000 shares of $0.0001 par value
capital stock authorized. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
---------- --------
<S> <C> <C>
Shares sold 631,957 874,570
Shares issued upon reinvestment
of dividends 215,954 264,072
Shares redeemed (1,674,189) (962,767)
---------- --------
(826,278) 175,875
---------- --------
---------- --------
</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 the average daily net assets of the Fund 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Mentor Investment Group, Inc. ("Mentor") provides administrative personnel and
services to the Fund under an Administrative Services 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.
Prior to August 21, 1995, the Fund paid fees to 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 with respect to
specified shareholder services provided by AUFSC.
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 for whom AUFSC provides such sub-transfer agency services.
Mentor 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, except
for expenses of approximately 0.06%, relating to the cost of solicitation of
proxies which was borne by the Fund. As a result of this expense limitation,
Mentor incurred expenses of $144,093 during the year ended December 31, 1996.
Effective November 1, 1996, Commonwealth was reorganized into Mentor Investment
Advisors, LLC ("Mentor Advisors") at which time the obligations of Commonwealth
under the Management Contract were transferred to Mentor Advisors. Mentor
Advisors is a wholly owned subsidiary of Mentor Investment Group, LLC. Mentor
Investment Group, LLC is a subsidiary of Wheat First Butcher Singer, Inc.
Effective November 1, 1996, Mentor Investment Group, Inc. was reorganized into
Mentor Investment Group, LLC, at which time the obligations of Mentor Investment
Group, Inc. were transferred to Mentor Investment Group, LLC.
Also effective November 1, 1996, EVEREN Capital Corporation acquired a 20%
ownership interest in Mentor Investment Group, LLC from Wheat First Butcher
Singer, Inc. As part of the acquisition agreement, EVEREN may acquire additional
ownership based principally on the amount of Mentor Investment Group, LLC's
revenues derived from clients of EVEREN Securities, Inc. and assets attributable
to its affiliates.
As of December 31, 1996, Dominion Resources, Inc. and subsidiaries owned 168,016
shares of capital stock, representing 2.92% of the total shares (market value
$4,212,161).
- ----------------------------------------------------------
Income Tax Information
Of the ordinary income distributions paid during the year ended December 31,
1996, the Fund is designating 100% as eligible for the dividends-received
exclusion for corporations.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by a prospectus for America's Utility Fund. It contains
complete information about fees, sales charges and expenses. Please read it
carefully before you invest or send money.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Directors and Shareholders of
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, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended December 31,
1996 and 1995, and the financial highlights for each of the years in the four
year period ended December 31, 1996, 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 audit 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 the securities owned at December 31, 1996 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of America's Utility
Fund, Inc. at December 31, 1996, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Richmond, Virginia
February 4, 1997
