<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996
REGISTRATION NO. 333-11785
811-07811
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 1 /X/
(Check appropriate box or boxes)
------------------------
PRUDENTIAL EMERGING GROWTH FUND, INC.
formerly known as Prudential Selected Growth Fund, Inc.
(Exact name of registrant as specified in charter)
GATEWAY CENTER 2
NEWARK, NEW JERSEY 07102
(Address of Principal Executive Offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 225-1852
S. JANE ROSE, ESQ.
GATEWAY CENTER 2
NEWARK, NEW JERSEY 07102
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
*Registrant hereby elects, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, to register an indefinite number of shares by this
Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ----------------------------------------------- ----------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information... Fund Expenses; How the Fund
Calculates Performance
Item 4. General Description of Cover Page; Fund Highlights; How
Registrant........................ the Fund Invests; General
Information
Item 5. Management of the Fund............ How the Fund is Managed
Item 5A. Management's Discussion of Fund
Performance....................... Not Applicable
Item 6. Capital Stock and Other Taxes, Dividends and
Securities........................ Distributions; General Information
Item 7. Purchase of Securities Being Shareholder Guide; How the Fund
Offered........................... Values its Shares
Item 8. Redemption or Repurchase.......... Shareholder Guide; How the Fund
Values its Shares
Item 9. Pending Legal Proceedings......... Not Applicable
PART B
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information and History... General Information
Item 13. Investment Objectives and Investment Objective and Policies;
Policies.......................... Investment Restrictions
Item 14. Management of the Fund............ Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal
Holders of Securities............. Manager
Item 16. Investment Advisory and Other Manager; Distributor; Custodian,
Services.......................... Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other
Practices......................... Portfolio Transactions
Item 18. Capital Stock and Other
Securities........................ Not Applicable
Item 19. Purchase, Redemption and Pricing Purchase and Redemption of Fund
of Securities Being Offered....... Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status........................ Taxes
Item 21. Underwriters...................... Distributor
Item 22. Calculation of Performance Data... Performance Information
Item 23. Financial Statements.............. Statement of Assets and
Liabilities
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PROSPECTUS DATED , 1996
- --------------------------------------------------------------------------------
Prudential Emerging Growth Fund, Inc. (the Fund) is a diversified, open-end,
management investment company with an investment objective of long-term capital
appreciation. The Fund seeks to achieve its objective by investing primarily in
equity securities of small and medium sized U.S. companies, ranging from $500
million to $4.5 billion in market capitalization with the potential for
above-average growth. The Fund may also invest in (i) equity securities of other
companies, including foreign issuers, (ii) investment grade debt securities,
including foreign issuers, and (iii) obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. The Fund may engage in
various derivative securities transactions, such as options on stocks, stock
indices and foreign currencies, foreign currency exchange contracts and futures
contracts on stock indices and options thereon to hedge its portfolio and to
attempt to enhance return. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies." The Fund's address is Prudential Plaza, Newark, New Jersey 07102, and
its telephone number is (800) 225-1852.
Prudential Securities will solicit subscriptions for Class A, Class B, Class C
and Class Z shares of the Fund during a subscription period commencing on or
about November 15, 1996 and currently expected to end on or about December 26,
1996.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated , 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THE PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL EMERGING GROWTH FUND?
Prudential Emerging Growth Fund, Inc. is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
diversified management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term capital appreciation. It
seeks to achieve its objective by investing primarily in equity securities
of small and medium sized U.S. companies, ranging from $500 million to $4.5
billion in market capitalization, with the potential for above-average
growth. See "How the Fund Invests--Investment Objective and Policies" at
page 5.
RISK FACTORS AND SPECIAL CHARACTERISTICS
The small and medium sized companies in which the Fund invests may be
subject to significant price fluctuation and above-average risk. In
addition, these companies are likely to reinvest their earnings rather than
distribute them; as a result, the Fund is not likely to receive significant
dividend income on its portfolio securities. An investment in the Fund
should not be considered a complete investment program and may not be
appropriate for all investors.
Under normal market conditions, the Fund intends to invest primarily in
equity securities of small and medium sized U.S. companies, ranging from
$500 million to $4.5 billion in market capitalization. See "How the Fund
Invests--Investment Objective and Policies" at page 5. In addition, the Fund
may also invest in (i) equity securities of other companies, including
foreign issuers, (ii) investment grade debt securities, including foreign
issuers, and (iii) obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities. Investing in securities of foreign
companies and countries involves certain risks and considerations not
typically associated with investments in domestic companies. See "How the
Fund Invests--Risk Factors and Special Considerations of Investing in
Foreign Securities" at page 9. The Fund may engage in various derivative
securities transactions, such as options on stocks, stock indices and
foreign currencies, foreign currency exchange contracts and futures
contracts on stock indices and options thereon to hedge its portfolio and to
attempt to enhance return. See "How the Fund Invests--Hedging and Return
Enhancement Strategies--Risks of Hedging and Return Enhancement Strategies"
at page 11.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management LLC (PMF or the Manager), is the manager
of the Fund and is compensated for its services at an annual rate of .60 of
1% of average daily net assets of the Fund. As of September 30, 1996, PMF
served as manager or administrator to 60 investment companies, including 38
mutual funds, with aggregate assets of approximately $52 billion. The
Prudential Investment Corporation (PIC or the Subadviser) furnishes
investment advisory services in connection with the management of the Fund
under a Subadvisory Agreement with PMF. See "How the Fund is
Managed--Manager" at page 12.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class A, Class B, Class C and Class Z shares. PSI
is paid a distribution and service fee with respect to Class A, Class B, and
Class C shares, which is currently being charged at the annual rate of .25
of 1% of the average daily net assets of the Class A shares and 1% of the
average daily net assets of each of the Class B and Class C shares.
Prudential Securities incurs the expense of distributing the Fund's Class Z
shares under a Distribution Agreement with the Fund, none of which is paid
for or reimbursed by the Fund. See "How the Fund is Managed--Distributor" at
page 13.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 for Class A or Class B shares and
$5,000 for Class C shares. There is no minimum initial investment
requirement for Class Z shares. The minimum subsequent investment is $100
for all classes, except for Class Z shares for which there is no such
minimum. There is no minimum investment requirement for certain retirement
and employee savings plans or custodial accounts for the benefit of minors.
For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--
How to Buy Shares of the Fund" at page 19 and "Shareholder
Guide--Shareholder Services" at page 29.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its
transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer
Agent), at the net asset value per share (NAV) next determined after receipt
of your purchase order by the Transfer Agent or Prudential Securities plus a
sales charge, which may be imposed either (i) at the time of purchase (Class
A shares) or (ii) on a deferred basis (Class B or Class C shares). Class Z
shares are offered to a limited group of investors at net asset value
without any sales charge. See "How The Fund Values its Shares" at page 15
and "Shareholder Guide--How to Buy Shares of the Fund" at page 19.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares:
<TABLE>
<S> <C>
- - Class A Shares: Sold with an initial sales charge of up to 5% of the offering
price.
- - Class B Shares: Sold without an initial sales charge, but subject to a
contingent deferred sales charge (CDSC), declining to zero
from 5% of the lower of the amount invested or the redemption
proceeds, which will be imposed on certain redemptions made
within six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically convert to
Class A shares approximately seven years after purchase.
- - Class C Shares: Sold without an initial sales charge but, for one year after
purchase, are subject to a CDSC of 1% on redemptions. Like
Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares, but Class C
shares do not convert to another class.
- - Class Z Shares: Sold without an initial or contingent deferred sales charge to
a limited group of investors. Class Z shares are not subject
to any ongoing service or distribution-related expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 21.
</TABLE>
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order.
However, the proceeds of redemptions of Class B and Class C shares may be
subject to a CDSC. See "Shareholder Guide--How to Sell Your Shares" at page
24.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any,
annually and distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that
they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 17.
3
<PAGE>
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES+ CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
------------------ ----------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)... 5% None None None
Maximum Sales Load Imposed on
Reinvested Dividends.................. None None None None
Maximum Deferred Sales Load (as a
percentage of original purchase price
or redemption proceeds, whichever is
lower)................................ None 5% during the first 1% on redemptions None
year, decreasing by 1% made within one
annually to 1% in the year of purchase
fifth and sixth years
and 0% in the seventh
year*
Redemption Fees........................ None None None None
Exchange Fees.......................... None None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
------------------ ----------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
.60% .60% .60% .60%
Management Fees........................
.25%++ 1.00% 1.00% None
12b-1 Fees (After Reduction)...........
.50 % .50 % .50 % .50 %
Other Expenses.........................
--- --- --- ---
Total Fund Operating Expenses (After
Reduction)............................ 1.35 % 2.10 % 2.10 % 1.10 %
--- --- --- ---
--- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 3
YEAR YEARS
--- -----
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
Class A...................................................................................... $ 63 $ 91
Class B...................................................................................... $ 71 $ 96
Class C...................................................................................... $ 31 $ 66
Class Z...................................................................................... $ 11 $ 35
You would pay the following expenses on the same investment, assuming no redemption:
Class A...................................................................................... $ 63 $ 91
Class B...................................................................................... $ 21 $ 66
Class C...................................................................................... $ 21 $ 66
Class Z...................................................................................... $ 11 $ 35
This example should not be considered a representation of past or future expenses. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
The purpose of this table is to assist an investor in understanding the various types of costs and expenses that an
investor in the Fund will bear, whether directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" include estimated operating expenses of the Fund, for the fiscal
year ending October 31, 1997, such as Directors' and professional fees, registration fees, reports to shareholders and
transfer agency and custodian (domestic and foreign) fees (but excludes foreign withholding taxes).
<FN>
- ---------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."+ Pursuant to rules of the National Association of
Securities Dealers, Inc., the aggregate initial sales charges, deferred
sales charges and asset-based sales charges (12b-1 fees) on shares of the
Fund may not exceed 6.25% of total gross sales, subject to certain
exclusions. This 6.25% limitation is imposed on the Fund rather than on a
per shareholder basis. Therefore, long-term Class B and Class C shareholders
of the Fund may pay more in total sales charges than the economic equivalent
of 6.25% of such shareholders' investment in such shares. See "How the Fund
is Managed--Distributor."++ Although the Class A Distribution and Service
Plan provides that the Fund may pay up to an annual rate of .30 of 1% of the
average daily net assets of the Class A shares, the Distributor has agreed
to limit its distribution fees with respect to Class A shares of the Fund so
as not to exceed .25 of 1% of the average daily net assets of the Class A
shares for the fiscal year ending October 31, 1997. See "How the Fund is
Managed--Distributor." Total Fund Operating Expenses for Class A shares
would be 1.40% absent this limitation.
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL APPRECIATION. IT SEEKS TO
ACHIEVE ITS OBJECTIVE BY INVESTING PRIMARILY (THAT IS, AT LEAST 65% OF ITS TOTAL
ASSETS) IN EQUITY SECURITIES OF SMALL AND MEDIUM SIZED U.S. COMPANIES WITH THE
POTENTIAL FOR ABOVE-AVERAGE GROWTH. THERE CAN BE NO ASSURANCE THAT THE FUND'S
OBJECTIVE WILL BE ACHIEVED. SEE "INVESTMENT OBJECTIVE AND POLICIES" IN THE
STATEMENT OF ADDITIONAL INFORMATION.
Under normal market conditions, the Fund intends to invest primarily in equity
securities of small and medium sized U.S. companies, ranging from $500 million
to $4.5 billion in market capitalization, with the potential for above-average
growth. (If a portfolio security increases to greater than $4.5 billion in
market capitilization, however, the Fund may not necessarily sell the security.)
Equity securities include common stocks, preferred stocks, securities
convertible into or exchangeable for common or preferred stocks, equity
investments in partnerships, joint ventures and other forms of non-corporate
investment, and warrants, options and rights exercisable for equity securities.
The Subadviser will select stocks on a company-by-company basis generally
through the use of both fundamental and quantitative analyses. The Subadviser
looks for companies that have demonstrated growth in earnings and sales, that
historically have had high returns on equity and assets, that offer products or
services that generate recurring revenues, or that have other strong financial
characteristics, and that, in the judgment of the Subadviser, are attractively
valued. These companies tend to have a unique market niche, a strong new product
profile or superior management.
The Fund may also invest up to 35% of its total assets in (i) equity
securities of other companies, including foreign issuers, (ii) investment grade
debt securities, including foreign issuers and (iii) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Investing
in securities of foreign companies and countries involves certain risks and
considerations not typically associated with investments in domestic companies.
Securities of small and medium sized companies have historically been more
volatile than the S&P 500 Index. Accordingly, during periods when stock prices
decline generally, it can be expected that the value of the Fund will decline
more than the market indices. In addition, these companies are likely to
reinvest their earnings rather than distribute them; as a result, the Fund is
not likely to receive significant dividend income on its portfolio securities.
The Fund may purchase and sell put and call options on stocks, stock indices
and foreign currencies, purchase and sell futures contracts on stock indices,
foreign currencies and options to hedge its portfolio and to attempt to enhance
return. The Fund may also lend its portfolio securities, enter into repurchase
agreements and purchase securities on a when-issued and delayed-delivery basis.
The Fund reserves the right as a defensive measure to hold temporarily other
types of securities without limit, including high quality commercial paper,
bankers' acceptances, non-convertible debt securities (corporate and government)
or government and high quality money market securities of United States and
non-United States issuers, or cash (foreign currencies or United States
dollars), in such proportions as, in the opinion of the Subadviser, prevailing
market, economic or political conditions warrant.
Subject to its investment policies, the Fund may also temporarily hold cash
and invest in high quality foreign or domestic money market instruments pending
investment of proceeds from new sales of Fund shares or to meet ordinary daily
cash needs. See "Other Investments and Policies" below.
The Fund's investment objective is a fundamental policy and may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940. Investment
policies that are not fundamental may be modified by the Board of Directors.
5
<PAGE>
CONVERTIBLE SECURITIES
A convertible security is a bond or preferred stock which may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation dependent upon a
market price advance in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the higher
of its "investment value" (I.E., its value as a fixed-income security) or its
"conversion value" (I.E., its value upon conversion into its underlying common
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying stock. The price of
a convertible security tends to increase as the market value of the underlying
stock rises, whereas it tends to decrease as the market value of the underlying
stock declines. While no securities investment is without some risk, investments
in convertible securities generally entail less risk than investments in the
common stock of the same issuer.
In recent years, convertibles have been developed which combine higher or
lower current income with options and other features. The Fund may invest in
these types of convertible securities.
OTHER INVESTMENT POLICIES
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. Government. Not all U.S. Government
securities are backed by the full faith and credit of the United States. Some
are supported only by the credit of the issuing agency. See "Investment
Objective and Policies--U.S. Government Securities" in the Statement of
Additional Information.
The Fund may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership interest
in a pool of mortgages, E.G., Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC) certificates where the U.S. Government or its agencies or
instrumentalities guarantees the payment of interest and principal of these
securities. These guarantees do not extend to the securities' yield or value,
which are likely to vary inversely with fluctuations in interest rates, nor do
these guarantees extend to the yield or value of the Fund's shares. See
"Investment Objective and Policies--U.S. Government Securities" in the Statement
of Additional Information. These certificates are in most cases "pass-through"
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate, net of certain
fees.
Mortgage-backed securities are subject to the risk that the principal on the
underlying mortgage loans may be prepaid at any time. Although the extent of
prepayments on a pool of mortgage loans depends on various economic and other
factors, as a general rule prepayments on fixed rate mortgage loans will
increase during a period of falling interest rates and decrease during a period
of rising interest rates. Accordingly, amounts available for reinvestment by the
Fund are likely to be greater during a period of declining interest rates and,
as a result, likely to be reinvested at lower interest rates than during a
period of rising interest rates. Mortgage-backed securities may decrease in
value as a result of increases in interest rates and may benefit less than other
fixed income securities from declining interest rates because of the risk of
prepayment.
6
<PAGE>
CORPORATE AND OTHER DEBT OBLIGATIONS
The Fund may invest in investment grade corporate and other debt obligations
of domestic and foreign issuers, including money market instruments. See "Money
Market Instruments" below. Bonds and other debt securities are used by issuers
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at maturity. Investment
grade debt securities are rated within the four highest quality grades as
determined by Moody's Investors Service (Moody's) (currently Aaa, Aa, A and Baa
for bonds), Standard & Poor's Ratings Group (S&P) (currently AAA, AA, A and BBB
for bonds), or another nationally recognized statistical rating organization;
unrated securities may also be investment grade if, in the opinion of the
Subadviser, they are of equivalent quality to those rated in the four highest
quality grades. Securities rated Baa by Moody's or BBB by S&P, although
considered to be investment grade, lack outstanding investment characteristics
and, in fact, have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
interest and principal payments than is the case with higher grade bonds. Such
lower rated securities are subject to a greater risk of loss of principal and
interest. A portfolio security whose rating is downgraded below Baa by Moody's
or BBB by S&P will be disposed of as soon as practicable.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements should at all times be fully collateralized in an
amount at least equal to the purchase price of the underlying securities
(including accrued interest earned thereon). In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. See "Investment Objective and Policies--Repurchase
Agreements" in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS
The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks, obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and cash. These obligations will be U.S. dollar
denominated or denominated in a foreign currency. Money market instruments
typically have a maturity of one year or less as measured from the date of
purchase. The Fund may invest in money market instruments without limit for
temporary defensive purposes. To the extent that the Fund otherwise invests in
money market instruments, it is subject to its investment policies described
above.
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If the
Fund's asset coverage for borrowings falls below 300%, the Fund will take prompt
action to reduce its borrowings. The Fund will not purchase portfolio securities
when borrowings exceed 5% of the value of its total assets. See "Borrowing" in
the Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in illiquid securities including
repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper
7
<PAGE>
that have a readily available market are not considered illiquid for purposes of
this limitation. The Fund intends to comply with any applicable state blue sky
laws restricting the Fund's investments in illiquid securities. See "Investment
Restrictions" in the Statement of Additional Information. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. Repurchase agreements subject to demand are deemed to
have a maturity equal to the applicable notice period.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that purchased over-the-counter (OTC) options and the assets used as
"cover" for written OTC options are illiquid securities unless the Fund and the
counterparty have provided for the Fund, at the Fund's election, to unwind the
OTC option. The exercise of such an option would ordinarily involve the payment
by the Fund of an amount designed to reflect the counterparty's economic loss
from an early termination, but does allow the Fund to treat the securities used
as "cover" as liquid. The Fund will follow this position as long as it remains
the position of the staff of the SEC. See "Investment Objective and
Policies--Illiquid Securities" in the Statement of Additional Information.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is generally not expected to exceed 100%.
High portfolio turnover (over 100%) may involve correspondingly greater
brokerage commissions and other transaction costs, which will be borne directly
by the Fund. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information. In addition, high portfolio turnover may result in
increased short-term capital gains, which, when distributed to shareholders, are
treated as ordinary income. See "Taxes, Dividends and Distributions."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities (including equity securities) on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place a month or more in the future in order to
secure what is considered to be an advantageous price and/or yield to the Fund
at the time of entering into the transaction. While the Fund will only purchase
securities on a when-issued or delayed delivery basis with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date, if it is deemed advisable. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, the Fund will
record the transaction and thereafter reflect the value, each day, of such
security in determining the net asset value of the Fund. At the time of delivery
of the securities, the value may be more or less than the purchase price. The
Fund's Custodian will maintain, in a segregated account of the Fund, cash or
liquid securities having a value equal to or greater than the Fund's purchase
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. Subject to this requirement, the Fund may purchase securities on
such basis without limit. See "Investment Objective and Policies--When-Issued
and Delayed Delivery Securities" in the Statement of Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As with any
extensions of credit, there are risks of delay in recovery and in some cases
loss of rights in the collateral should the borrower of the securities fail
financially. As a matter of fundamental policy, the Fund cannot lend more than
33 1/3% of the value of its total assets. See "Investment Objective and
Policies--Lending of Securities" in the Statement of Additional Information. The
Fund may pay reasonable administration and custodial fees in connection with a
loan.
8
<PAGE>
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales against-the-box for the purpose of deferring
realization of gain or loss for federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns an equal amount of the
securities sold short or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES
Foreign securities involve certain risks, which should be considered carefully
by an investor in the Fund. These risks include political or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. Government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States and there is a possibility of expropriation,
confiscatory taxation or diplomatic developments which could affect investment.
Additional costs could be incurred in connection with the Fund's international
investment activities. Foreign brokerage commissions are generally higher than
United States brokerage commissions. Increased custodian costs as well as
administrative difficulties (such as the applicability of foreign laws to
foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.
If a security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders.
Shareholders should be aware that investing in the equity markets of
developing countries involves exposure to economies that are generally less
diverse and mature, and to political systems which can be expected to have less
stability than those of developed countries. Historical experience indicates
that the markets of developing countries have been more volatile than the
markets of developed countries. The risks associated with investments in foreign
securities, described above, may be greater with respect to investments in
developing countries.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. These strategies
currently include the use of derivatives, such as options, futures contracts and
options thereon. The Fund's ability to use these strategies may be limited by
market conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. See "Investment Objective
and Policies" and "Taxes" in the Statement of Additional Information. The
Subadviser does not intend to buy all of these instruments or use all of these
strategies to the full extent permitted unless it believes that doing so will
help the Fund achieve its objective. New financial products and risk management
techniques continue to be developed and the Fund may use these new investments
and techniques to the extent consistent with its investment objective and
policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, STOCK INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN
SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO ENHANCE
RETURN OR
9
<PAGE>
TO HEDGE ITS PORTFOLIO. These options will be on equity securities, stock
indices (E.G., S&P 500) and foreign currencies. The Fund may write covered put
and call options to generate additional income through the receipt of premiums,
purchase put options in an effort to protect the value of securities (or
currencies) that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
(or currencies) it intends to purchase. The Fund may also purchase put and call
options to offset previously written put and call options of the same series.
See "Investment Objective and Policies--Options on Securities" in the Statement
of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT
FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY SUBJECT TO
THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The writer
of a call option, in return for the premium, has the obligation, upon exercise
of the option, to deliver, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When the Fund writes a call option, the Fund
gives up the potential for gain on the underlying securities or currency in
excess of the exercise price of the option during the period that the option is
open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in the
underlying security or currency or maintains cash or liquid securities with a
value sufficient at all times to cover its obligations in a segregated account.
See "Investment Objective and Policies--Options on Securities" in the Statement
of Additional Information. Although there is no limitation on the amount of call
options the Fund may write, the Fund has undertaken with certain state
securities commissions to have certain limits on purchasing put and call
options. See "Investment Objective and Policies--Limitations on Purchase and
Sale of Stock Options, Options on Stock Indices and Foreign Currencies and
Futures Contracts and Related Options" in the Statement of Additional
Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS THEREON
WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). These futures
contracts and related options will be on debt securities, stock indices and
foreign currencies. A futures contract is an agreement to purchase or sell an
agreed amount of securities or currencies at a set price for delivery in the
future. A stock index futures contract is an agreement to purchase or sell cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical delivery of the underlying
stocks in the index is made. The Fund may purchase and sell futures contracts or
related options as a hedge against changes in market conditions.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (I.E., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of the Fund's portfolio.
10
<PAGE>
Futures contracts and related options are generally subject to segregation and
coverage requirements of the CFTC or the SEC. If the Fund does not hold the
security or currency underlying the futures contract, the Fund will be required
to segregate on an ongoing basis with its Custodian cash or liquid securities in
an amount at least equal to the Fund's obligations with respect to such futures
contracts.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index or price of the
currencies underlying the futures contract is imperfect and there is a risk that
the value of the indices or currencies underlying the futures contract may
increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.
THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON IS
LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE FOR QUALIFICATION AS A
REGULATED INVESTMENT COMPANY. SEE "TAXES" AND "INVESTMENT OBJECTIVE AND
POLICIES" IN THE STATEMENT OF ADDITIONAL INFORMATION.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the Subadviser's
predictions of movements in the direction of the securities, foreign currency
and interest rate markets are inaccurate, the adverse consequences to the Fund
may leave the Fund in a worse position than if such strategies were not used.
Risks inherent in the use of options, foreign currency and futures contracts and
options on futures contracts include (1) dependence on the Subadviser's ability
to predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities or currencies being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for the
Fund to maintain "cover" or to segregate securities in connection with hedging
transactions. See "Taxes" in the Statement of Additional Information.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if management believes that the
other party to the options will continue to make a market for such options.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
11
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUND IS MANAGED
- --------------------------------------------------------------------------------
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE ACTIONS
OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON MATTERS OF
GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
The Fund is responsible for the payment of certain fees and expenses
including, among others, the following: (i) management and distribution fees;
(ii) the fees of unaffiliated Directors; (iii) the fees of the Fund's Custodian
and Transfer and Dividend Disbursing Agent; (iv) the fees of the Fund's legal
counsel and independent accountants; (v) brokerage commissions incurred in
connection with portfolio transactions; (vi) all taxes and charges of
governmental agencies; (vii) the reimbursement of organization expenses; and
(viii) expenses related to shareholder communications including all expenses of
shareholders' and Board of Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT LLC (PMF OR THE MANAGER), GATEWAY CENTER 2,
NEWARK, NEW JERSEY 07102, IS THE MANAGER OF THE FUND AND IS COMPENSATED FOR ITS
SERVICES AT AN ANNUAL RATE OF .60 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS.
PMF is organized in New York as a limited liability company. It is the successor
to Prudential Mutual Fund Management, Inc., which transferred its assets to PMF
in September 1996. See "Manager" in the Statement of Additional Information.
As of September 30, 1996, PMF served as the manager to 38 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER THE SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services. PMF and PIC
are wholly-owned subsidiaries of The Prudential Insurance Company of America
(Prudential), a major diversified insurance and financial services company.
The portfolio manager of the Fund is Susan Hirsch, a Vice President of PIC,
who is responsible for the day-to-day management of the Fund's portfolio. Ms.
Hirsch has been employed by PIC as a portfolio manager since July 1996. Ms.
Hirsch joined PIC from Delphi Asset Management ("Delphi"), where she was solely
responsible for the management of the U.S. Selected Growth Portfolio of the AMT
Capital Fund. Prior to that, she was at Lehman Brothers Global Asset Management
Inc. where she was the sole portfolio manager of the Lehman Selected Growth
Stock Portfolio ("Lehman Growth Portfolio") since the fund's inception in May,
1994, and the fund's research analyst since 1988. The Lehman Growth Portfolio
was merged into AMT's U.S. Selected Growth Portfolio in March, 1996 coinciding
with Ms. Hirsch joining Delphi. The merger enabled Ms. Hirsch to continue to
manage a substantially similar portfolio for the shareholders of what was
previously the Lehman Growth Portfolio and to maintain the track record of the
Lehman fund's performance.
Set forth below is historical performance data relating to the Lehman Growth
Portfolio and the U.S. Selected Growth Portfolio (collectively, the "Growth
Portfolios"). Ms. Hirsch was always the sole portfolio manager responsible for
the day-to-day
12
<PAGE>
management of each fund, and no other person played a significant part in their
management. The U.S. Selected Growth Portfolio began liquidating its portfolio
on June 1, 1996, in anticipation of its closing. The data is provided to
illustrate Ms. Hirsch's past performance in managing registered investment
companies with investment objectives and policies substantially similar to the
Fund, as measured against the Russell 2000 Small-Cap Index ("Russell 2000") and
the Standard & Poor's Mid-Cap 400 Index ("S&P 400"). The returns quoted are
annualized total rates of return which include the impact of capital
appreciation as well as the reinvestment of interest and dividends, as
appropriate. Investors should not consider this performance data as an
indication of the future performance of the Fund.
GROWTH PORTFOLIOS ANNUALIZED TOTAL RETURN
FOR PERIODS ENDED MAY 31, 1996
<TABLE>
<CAPTION>
GROWTH PORTFOLIOS RUSSELL 2000 S&P 400
----------------- ------------- -----------
<S> <C> <C> <C>
One-Year Period........................................................... 49.03% 35.90% 28.46%
Since Growth Portfolios' Inception (5/19/94).............................. 29.49% 22.16% 20.52%
</TABLE>
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF
THE STATE OF DELAWARE THAT SERVES AS THE DISTRIBUTOR OF THE CLASS A, CLASS B,
CLASS C AND CLASS Z SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED
SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES INCURS THE EXPENSES OF
DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. Prudential
Securities also incurs the expenses of distributing the Fund's Class Z shares
under the Distribution Agreement, none of which is paid for or reimbursed by the
Fund. These expenses include commissions and account servicing fees paid to, or
on account of, financial advisers of Prudential Securities and Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, commissions and account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements with
the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses. The State
of Texas requires that shares of the Fund may be sold in that state only by
dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. Prudential Securities has agreed
to limit its distribution-related fees payable under the Class A Plan to .25 of
1% of the average daily net assets of the Class A shares for the fiscal year
ending October 31, 1997.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES FOR
ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B AND
CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales
13
<PAGE>
charge of .75 of 1% of the average daily net assets of the Class B and Class C
shares, respectively, and (ii) a service fee of .25 of 1% of the average daily
net assets of each of the Class B and Class C shares. The service fee is used to
pay for personal service and/or the maintenance of shareholder accounts.
Prudential Securities also receives contingent deferred sales charges from
certain redeeming shareholders. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges."
Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the sales
of all shares of the Fund other than expenses allocable to a particular class.
The distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.
Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Directors of the Fund, including a majority of
the Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Directors), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Directors or of a majority of
the outstanding shares of the applicable class of the Fund. The Fund will not be
obligated to pay expenses incurred under any Plan if it is terminated or not
continued.
In addition to distribution and service fees paid by the Fund under the Class
A, Class B and Class C Plans, the Manager (or one of its affiliates) may make
payments to dealers and other persons which distribute shares of the Fund
(including Class Z shares). Such payments may be calculated by reference to the
net asset value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
$10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purposes of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
14
<PAGE>
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
FEE WAIVERS AND SUBSIDY
PMF may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidies will increase the Fund's total return. See "Performance
Information" in the Statement of Additional Information and "Fund Expenses."
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Fund provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE FUND VALUES ITS SHARES
- --------------------------------------------------------------------------------
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. FOR
VALUATION PURPOSES, QUOTATIONS OF FOREIGN SECURITIES IN A FOREIGN CURRENCY ARE
CONVERTED TO U.S. DOLLAR EQUIVALENTS. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. See "Net Asset Value" in the Statement of
Additional Information.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. The NAV of Class Z shares will
generally be higher than the NAV of the other three classes because Class Z
shares are not subject to any distribution and/or
15
<PAGE>
service fees. It is expected, however, that the NAV of the four classes will
tend to converge immediately after the recording of dividends, which will differ
by approximately the amount of distribution and/or service fee expense accrual
differential among the classes.
- --------------------------------------------------------------------------------
HOW THE FUND CALCULATES PERFORMANCE
- --------------------------------------------------------------------------------
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING "AVERAGE
ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN ADVERTISEMENTS
OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS
A, CLASS B, CLASS C AND CLASS Z SHARES. THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return"
shows how much an investment in the Fund would have increased (decreased) over a
specified period of time (I.E., one, five, or ten years or since inception of
the Fund) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. The "aggregate" total return reflects actual performance over a stated
period of time. "Average annual" total return is a hypothetical rate of return
that, if achieved annually, would have produced the same aggregate total return
if performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any federal
or state income taxes which may be payable upon redemption. The "yield" refers
to the income generated by an investment in the Fund over a one-month or 30-day
period. This income is then "annualized;" that is, the amount of income
generated by the investment during that 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. The Fund also may include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., and other industry publications, business
periodicals and market indices. See "Performance Information" in the Statement
of Additional Information. Further performance information will be contained in
the Fund's annual and semi-annual reports to shareholders, which will be
available without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
TAXATION OF THE FUND
THE FUND INTENDS TO ELECT TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See "Taxes" in the Statement of Additional
Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts). At
the end of each year, such investments held by the Fund will be required to be
"marked to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on these
"deemed sales" and on actual dispositions may be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss. See "Taxes" in the Statement of Additional Information.
16
<PAGE>
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition may be
treated as ordinary gain or loss. These gains or losses increase or decrease the
amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by the Fund during the year would be characterized as a
return of capital to shareholders, reducing the shareholder's basis in his or
her Fund shares.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of net
short-term capital gains, will be taxable as ordinary income to the shareholder
whether or not reinvested. Any net long-term capital gains distributed to
shareholders will be taxable as such to the shareholder, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for corporate shareholders
is currently the same as the maximum tax rate for ordinary income. The maximum
long-term capital gains rate for individual shareholders is currently 28% and
the maximum tax rate for ordinary income is 39.6%.
Any gain or loss realized upon a sale or redemption of shares by a shareholder
who is not a dealer in securities will be treated as long-term capital gain or
loss if the shares have been held more than one year and otherwise as short-term
capital gain or loss. Any such loss, however, on shares that are held for six
months or less, will be treated as a long-term capital loss to the extent of any
capital gain distributions received by the shareholder.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividend, capital gain income and redemption proceeds,
payable on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes" in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, ANNUALLY
AND TO MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM
CAPITAL LOSSES AT LEAST ANNUALLY. Dividends paid by the Fund with respect to
each class of shares, to the extent any dividends are paid, will be calculated
in the same manner, at the same time, on the same day and will be in the same
amount except that each class will bear its own distribution and/or service fee
charges, generally resulting in lower dividends for Class B and Class C shares
in relation to Class A and Class Z shares and lower dividends for Class A shares
in relation to Class Z shares. Distribution of net capital gains, if any, will
be paid in the same amount for each class of shares. See "How The Fund Values
its Shares."
17
<PAGE>
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attn: Account Maintenance Unit, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
WHEN THE FUND GOES "EX-DIVIDEND," ITS NAV IS REDUCED BY THE AMOUNT OF THE
DIVIDEND OR DISTRIBUTION. IF YOU BUY SHARES JUST PRIOR TO THE EX-DIVIDEND DATE
(WHICH GENERALLY OCCURS FOUR BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE
YOU PAY WILL INCLUDE THE DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR
INVESTMENT WILL BE RETURNED TO YOU AS A TAXABLE DISTRIBUTION. YOU SHOULD,
THEREFORE, CONSIDER THE TIMING OF DIVIDENDS WHEN MAKING YOUR PURCHASES.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON AUGUST 23, 1996. THE FUND IS
AUTHORIZED TO ISSUE 2 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND CLASS Z
COMMON STOCK. Of the authorized shares of common stock of the Fund, 1 billion
shares consist of Class A common stock, 500 million shares consist of Class B
common stock, 300 million shares consist of Class C common stock and 200 million
shares consist of Class Z common stock. Each class of common stock of the Fund
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class (with the exception of Class Z shares) is
subject to different sales charges and distribution and/or service fees which
may affect performance, (ii) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "How the Fund is
Managed--Distributor." The Fund is permitted to issue and sell multiple classes
of common stock. Currently, the Fund is offering four classes, designated Class
A, Class B, Class C and Class Z shares. In accordance with the Fund's Articles
of Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares (with the exception of Class
Z shares, which are not subject to any distribution or service fees). Except for
the conversion feature applicable to the Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses of the Fund have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of those
classes are likely to be lower than to Class A shareholders and to Class Z
shareholders, whose shares are not subject to any distribution and/ or service
fees. The Fund's shares do not have cumulative voting rights for the election of
Directors.
18
<PAGE>
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR MORE
OF THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE FUND
INITIAL OFFERING OF SHARES
Prudential Securities will solicit subscriptions for Class A, Class B, Class C
and Class Z shares of the Fund during a subscription period (the Subscription
Period) commencing on or about November 15, 1996, and currently expected to end
on or about December 20, 1996. Shares of the Fund subscribed for during the
Subscription Period will be issued at a net asset value of $10.00 per share on a
closing date (which is expected to occur on December 26, 1996 or the third
business day after the end of the Subscription Period). An initial sales charge
of 5% (5.26% of the net amount invested) is imposed on each transaction in Class
A shares. This initial sale charge may be reduced, depending on the amount of
the purchase, as set forth in the table under "Continuous Offering of Shares."
Each investor's dealer will notify such investor of the end of the Subscription
Period and payment will be due within three days thereafter. If any orders
received during the Subscription Period are accompanied by payment, such payment
will be returned unless instructions have been received authorizing investment
in a money market fund. All such funds received and invested in a money market
fund, including any dividends received on these funds, will be automatically
invested in the Fund on the closing date without any further action by the
investor. Shareholders who purchase their shares during the Subscription Period
will not receive stock certificates. The minimum initial investment during the
Subscription Period is $1,000 per class for Class A and Class B shares and
$5,000 for Class C shares. There are no minimum investment requirements for
Class Z shares and for certain retirement and employee saving plans or custodial
accounts for the benefit of minors. The Fund reserves the right to delay
commencement of a continuous offering to new investors until up to 30 business
days after the end of the Subscription Period.
Subscribers for shares will not have any of the rights of a shareholder of the
Fund until the shares subscribed for have been paid for and their issuance has
been reflected in the books of the Fund. The Fund reserves the right to
withdraw, modify or terminate the initial offering without notice and to refuse
any order in whole or in part.
CONTINUOUS OFFERING OF SHARES
The Fund reserves the right to delay commencement of the continuous offering
of its shares to the public for a period (the Closing Period) of up to 30
business days after the end of the Subscription Period, although redemptions
will be permitted during this time. Immediately after the expiration of the
Closing Period, the Fund expects to commence a continuous offering of its
shares.
19
<PAGE>
You may purchase shares of the Fund through Prudential Securities, Prusec or
directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The offering price is the
NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be imposed
either (i) at the time of purchase (Class A shares) or (ii) on a deferred basis
(Class B or Class C shares). Class Z shares are offered to a limited group of
investors at net asset value without any sales charge. See "Alternative Purchase
Plan" below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or Prusec.
If a stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive stock certificates.
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. There is no minimum initial investment
requirement for Class Z shares. The minimum subsequent investment is $100 for
all classes, except for Class Z shares for which there is no such minimum. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services."
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Emerging Growth Fund, Inc., specifying on the
wire the account number assigned by PMFS and your name and identifying Class A,
Class B, Class C or Class Z shares.
If you arrange for receipt by State Street of federal funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Emerging Growth
Fund, Inc., Class A, Class B, Class C or Class Z shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing federal funds. The minimum amount which may be
invested by wire is $1,000.
20
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND CLASS Z
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------------- ----------------------- --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the redemption
proceeds on redemptions made within
Class C one year of purchase.
CLASS Z None None Sold to a limited group of investors
</TABLE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of Class Z shares which are not subject to any distribution
and/or service fees) bears the separate expenses of its Rule 12b-1 distribution
and service plan, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature, and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "How to Exchange Your Shares" below. The income
attributable to each class and the dividends payable on the shares of each class
will be reduced by the amount of the distribution fee (if any) of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class Z
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
21
<PAGE>
If you intend to hold your investment in the Fund for less than 7 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to an initial sales charge of 5% and Class B shares are subject to a
CDSC of 5% which declines to zero over a 6-year period, you should consider
purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class A or Class B shares over Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES
UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. SEE "REDUCTION AND
WAIVER OF INITIAL SALES CHARGES."
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:
<TABLE>
<CAPTION>
DEALER
SALES CONCESSION
CHARGE AS SALES AS
PERCENTAGE CHARGE AS PERCENTAGE
OF PERCENTAGE OF
OFFERING OF AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may provide full dealer allowance. Selling dealers may be
deemed to be underwriters, as that term is defined in the Securities Act of
1933.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and
22
<PAGE>
annuity plans under Sections 457 or 403(b)(7) of the Internal Revenue Code
(Benefit Plans), provided that the plan has existing assets of at least $1
million invested in shares of Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) or 250
eligible employees or participants. In the case of Benefit Plans whose accounts
are held directly with the Transfer Agent or Prudential Securities and for which
the Transfer Agent or Prudential Securities does individual account
recordkeeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.
PRUARRAY AND SMARTPATH PLANS. Class A shares may be purchased at NAV by
certain retirement and deferred compensation plans, qualified or non-qualified
under the Internal Revenue Code, including pension, profit-sharing, stock-bonus
or other employee benefit plans under Section 401 of the Internal Revenue Code
and deferred compensation and annuity plans under Sections 457 or 403(b)(7) of
the Internal Revenue Code that participate in the Prudential's PruArray and
SmartPath Programs (benefit plan recordkeeping services) (hereafter referred to
as a PruArray or SmartPath Plan); provided that the plan has at least $1 million
in existing assets or 250 eligible employees or participants. The term "existing
assets" for this purpose includes stock issued by a PruArray or SmartPath Plan
sponsor, shares of non-money market Prudential Mutual Funds and shares of
certain unaffiliated non-money market mutual funds that participate in the
PruArray or SmartPath Program (Participating Funds). "Existing assets" also
include shares of money market funds acquired by exchange from a Participating
Fund.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (d) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (e) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities, or within one year in the case of Benefit Plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end fund
sponsored by the financial adviser's previous employer (other than a money
market fund or other no-load fund which imposes a distribution or service fee of
.25 of 1% or less) and (iii) the financial adviser served as the client's broker
on the previous purchase.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemption of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
23
<PAGE>
CLASS Z SHARES
Class Z shares are available for purchase by (i) pension, profit sharing or
other employee benefit plans qualified under Section 401 of the Internal Revenue
Code, deferred compensation and annuity plans under Sections 457 and 403(b)(7)
of the Internal Revenue Code, and non-qualified plans for which the Fund is an
available option (Benefit Plans), provided such plans (in combination with other
plans sponsored by the same employer or group of related employers) have at
least $50 million in defined contribution assets, (ii) participants in any
fee-based program sponsored by Prudential Securities which includes mutual funds
as investment options and for which the Fund is an available option and (iii)
investors who are, or who have executed a letter of intent to become,
shareholders of any series of The Prudential Institutional Fund (Institutional
Fund) on or before one or more series of Institutional Fund reorganize, or who
on that date have investments in certain products for which Institutional Fund
provides exchangeability. After a Benefit Plan qualifies to purchase Class Z
shares, all subsequent purchases will be for Class Z shares.
In connection with the sale of Class Z Shares, the Manager, Distributor or one
of their affiliates may pay dealers, financial advisers and other persons who
distribute shares a finders' fee based on a percentage of the net asset value of
shares distributed by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES."
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges."
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on such Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions prescribed in (b), (c) or (d) exist.
24
<PAGE>
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund has, however, elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during the 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
any such shareholder 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of the Fund at the NAV next determined
after the order is received, which must be within 90 days after the date of
redemption. No sales charge will apply to such repurchases. You will receive PRO
RATA credit for any contingent deferred sales charge paid in connection with the
redemption of Class B or Class C shares. You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities or Prusec, at the time
the repurchase privilege is exercised that you are entitled to credit for the
contingent deferred sales charge previously paid. Exercise of the repurchase
privilege will not affect the federal income tax treatment of any gain realized
upon redemption. If the redemption results in a loss, some or all of the loss,
depending on the amount reinvested, will not be allowed for federal income tax
purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge (CDSC) declining to zero from 5% over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the amount of
all payments by you for shares during the preceding six years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares purchased
through reinvestment of dividends or distributions are not subject to CDSC. The
amount of any contingent deferred sales charge will be paid to and retained by
the Distributor. See "How the Fund is Managed--Distributor" and "Waiver of the
Contingent Deferred Sales Charges" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
25
<PAGE>
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------------------- -------------------------
<S> <C>
First.......................... 5.0%
Second......................... 4.0%
Third.......................... 3.0%
Fourth......................... 2.0%
Fifth.......................... 1.0%
Sixth.......................... 1.0%
Seventh........................ None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results generally in the lowest possible rate. It
will be assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years;
then of amounts representing the cost of shares held beyond the applicable CDSC
period; and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will be
waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination or disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service, I.E.,
following voluntary or involuntary termination of employment or following
retirement. Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan unless such
redemptions otherwise qualify as a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will
26
<PAGE>
thereafter be subject to a CDSC without regard to the time such amounts were
previously invested. In the case of a 401(k) plan, the CDSC will also be waived
upon the redemption of shares purchased with amounts used to repay loans made
from the account to the participant and from which a CDSC was previously
deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC. The waiver will be granted subject to confirmation of your
entitlement.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then in your account. Each time any Eligible Shares in
your account convert to Class A shares, all shares or amounts representing Class
B shares then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (I.E., $1,000
divided by $2,100 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange, or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares.
The conversion feature is subject to the continuing availability of opinions
of counsel or rulings of the Internal Revenue Service (i) that the dividends and
other distributions paid on Class A, Class B, Class C and Class Z shares will
not constitute "preferential dividends" under the Internal Revenue Code and (ii)
that the conversion of shares does not constitute a taxable event. The
27
<PAGE>
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN OTHER
PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET FUNDS,
SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B,
CLASS C AND CLASS Z SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV.
No sales charge will be imposed at the time of exchange. Any applicable CDSC
payable upon the redemption of shares exchanged will be that imposed by the fund
in which shares are initially purchased and will be calculated from the first
day of the month after the initial purchase, excluding the time shares were held
in a money market fund. Class B and Class C shares may not be exchanged into
money market funds other than Prudential Special Money Market Fund. For purposes
of calculating the holding period applicable to the Class B conversion feature,
the time period during which Class B shares were held in a money market fund
will be excluded. See "Conversion Feature--Class B Shares." An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. (The Fund or its agents could be subject to liability
if they fail to employ reasonable procedures.) All exchanges will be made on the
basis of the relative NAV of the two funds next determined after the request is
received in good order. The exchange privilege is available only in states where
the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges")
and for shareholders who qualify to purchase Class Z shares (see "Alternative
Purchase Plan--Class Z Shares"). Under this exchange privilege, amounts
representing any Class B and Class C shares (which are not subject to a CDSC)
held in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise. Similarly,
shareholders who qualify to purchase Class Z shares, will have their Class B and
Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange.
28
<PAGE>
Amounts representing Class B or Class C shares which are not subject to a CDSC
include the following: (1) amounts representing Class B or Class C shares
acquired pursuant to the automatic reinvestment of dividends and distributions,
(2) amounts representing the increase in the net asset value above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through Prudential Securities or Prusec that they are eligible for this
special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they join the program. Upon leaving the program (whether voluntarily or not),
such Class Z shares (and, to the extent provided for in the program, Class Z
shares acquired through participation in the program) will be exchanged for
Class A shares at net asset value. Similarly, participants in PSI's 401(k) Plan
for which the Fund's Class Z shares is an available option and who wish to
transfer their Class Z shares out of the PSI 401(k) Plan following separation of
service (I.E., voluntary or involuntary termination of employment or retirement)
will have their Class Z shares exchanged for Class A shares at net asset value.
The Fund reserves the right to reject any exchange order including exchanges
(and market timing transactions) which are of size and/or frequency engaged in
by one or more accounts acting in concert or otherwise, that have or may have an
adverse effect on the ability of the Subadviser to manage the portfolio. The
determination that such exchanges or activity may have an adverse effect and the
determination to reject any exchange order shall be in the discretion of the
Manager and the Subadviser.
The exchange privilege is not a right and may be suspended, terminated or
modified at any time.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
- AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec registered representative or the
Transfer Agent directly.
- TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-- Contingent Deferred Sales Charges." See also "Shareholder Investment
Account--Systematic Withdrawal Plan" in the Statement of Additional Information.
29
<PAGE>
- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at
Gateway Center 2, Newark, New Jersey 07102. In addition, monthly unaudited
financial data are available upon request from the Fund.
- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at Gateway
Center 2, Newark, New Jersey 07102, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A. at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
30
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
- --------------------
TAXABLE BOND FUNDS
- ------------------------------------
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
- ------------------------
TAX-EXEMPT BOND FUNDS
- ------------------------------------
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
- ---------------
GLOBAL FUNDS
- ------------------------------------
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Series
International Stock Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
- ---------------
EQUITY FUNDS
- ------------------------------------
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth and Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
- ---------------------
MONEY MARKET FUNDS
- ------------------------------------
- -TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
-------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS........................................ 2
Risk Factors and Special Characteristics............. 2
FUND EXPENSES.......................................... 4
HOW THE FUND INVESTS................................... 5
Investment Objective and Policies.................... 5
Other Investment Policies............................ 6
Risk Factors and Special Considerations of Investing
in Foreign Securities............................... 9
Hedging and Return Enhancement Strategies............ 9
Investment Restrictions.............................. 11
HOW THE FUND IS MANAGED................................ 12
Manager.............................................. 12
Distributor.......................................... 13
Fee Waivers and Subsidy.............................. 15
Portfolio Transactions............................... 15
Custodian and Transfer and Dividend Disbursing
Agent............................................... 15
HOW THE FUND VALUES ITS SHARES......................... 15
HOW THE FUND CALCULATES PERFORMANCE.................... 16
TAXES, DIVIDENDS AND DISTRIBUTIONS..................... 16
GENERAL INFORMATION.................................... 18
Description of Common Stock.......................... 18
Additional Information............................... 19
SHAREHOLDER GUIDE...................................... 19
How to Buy Shares of the Fund........................ 19
Alternative Purchase Plan............................ 21
How to Sell Your Shares.............................. 24
Conversion Feature--Class B Shares................... 27
How to Exchange Your Shares.......................... 28
Shareholder Services................................. 29
THE PRUDENTIAL MUTUAL FUND FAMILY...................... A-1
</TABLE>
- -------------------------------------------
MF173A 42M2575
Class A:
CUSIP Nos.: Class B:
Class C:
Class Z:
PROSPECTUS
1996
PRUDENTIAL
EMERGING GROWTH FUND, INC.
- --------------------------------------
[LOGO]
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1996
Prudential Emerging Growth Fund, Inc. (the Fund) is an open-end, diversified
management investment company. The investment objective of the Fund is long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of small and medium sized U.S. companies, ranging
from $500 million to $4.5 billion in market capitalization, with the potential
for above-average growth. The Fund may also invest in (i) equity securities of
other companies, including foreign issuers, (ii) investment grade debt
securities, including foreign issuers, and (iii) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. The Fund
may engage in various derivative securities transactions, such as options on
stocks, stock indices and foreign currencies, foreign currency exchange
contracts and futures contracts on stock indices and options thereon to hedge
its portfolio and to attempt to enhance return. There can be no assurance that
the Fund's investment objective will be achieved. See "Investment Objective and
Policies."
The Fund's address is Gateway Center 2, Newark, New Jersey 07102, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Prudential Emerging Growth Fund dated
, 1996, copies of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN THE
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
Investment Objective and Policies..................... B-2 5
Investment Restrictions............................... B-13 13
Directors and Officers................................ B-15 13
Manager............................................... B-19 13
Distributor........................................... B-21 14
Portfolio Transactions and Brokerage.................. B-22 16
Purchase and Redemption of Fund Shares................ B-23 21
Shareholder Investment Account........................ B-26 21
Net Asset Value....................................... B-30 17
Taxes................................................. B-30 18
Performance Information............................... B-33 17
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants.............................. B-34 16
Independent Auditors' Report.......................... B-35 --
Financial Statement................................... B-36 --
Appendix--Historical Performance Data................. A-1 --
Appendix--General Investment Information.............. A-6 --
Appendix--Information Relating to The Prudential...... A-7 --
</TABLE>
- --------------------------------------------------------------------------------
MF168B
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Prudential Selected Growth Fund, Inc. (the Fund) is an open-end, diversified
management investment company. The investment objective of the Fund is long-term
capital appreciation. Under normal market conditions, the Fund intends to invest
primarily in equity securities of small and medium sized U.S. companies, ranging
from $500 million to $4.5 billion in market capitalization with the potential
for above-average growth. The Fund may also invest in (i) equity securities of
other companies including foreign issuers, (ii) investment grade debt
securities, including foreign issuers, and (iii) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. The Fund
may engage in various derivative securities transactions, such as options on
stocks, stock indices and foreign currencies, foreign currency exchange
contracts and the purchase and sale of futures contracts on stock indices and
options thereon to hedge its portfolio and to attempt to enhance return. See
"How the Fund Invests--Investment Objective and Policies" in the Prospectus.
There can be no assurance that the Fund's investment objective will be achieved.
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. The Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government. These obligations,
including those which are guaranteed by Federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Small Business Administration are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Fund must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations such as those issued by the Federal Home Loan Bank, the
Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations.
Obligations issued or guaranteed as to principal and interest by the United
States Government may be acquired by the Fund in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain United States Treasury notes or bonds. Such notes and bonds are held
in custody by a bank on behalf of the owners. These custodial receipts are
commonly referred to as Treasury strips.
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in mortgage-backed securities, including
those which represent undivided ownership interests in pools of mortgages. The
U.S. Government or the issuing agency or instrumentality guarantees the payment
of interest on and principal of these securities. However, the guarantees do not
extend to the yield or value of the securities nor do the guarantees extend to
the yield or value of the Fund's shares. These securities are in most cases
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. Because the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the average life of a
particular issue of pass-through certificates. Mortgage-backed securities are
often subject to more rapid repayment than their maturity date would indicate as
a result of the pass-through of prepayments of principal on the underlying
mortgage obligations. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
The Fund's ability to invest in high-yielding mortgage-backed securities will be
adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid mortgages.
Moreover, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses.
The Fund may purchase collateralized mortgage obligations (CMO) issued by
agencies or instrumentalities of the U.S. Government. A CMO is backed by a
portfolio of mortgages or mortgage-backed securities. The issuer's obligation to
make
B-2
<PAGE>
interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. The issuer of a series of CMOs may
elect to be treated as a Real Estate Mortgage Investment Conduit (REMIC). All
future references to CMOs shall also be deemed to include REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the underlying mortgage assets may cause the CMOs
to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal of and interest on the
underlying mortgage assets may be allocated among the several classes of a CMO
series in a number of different ways. Generally, the purpose of the allocation
of the cash flow of a CMO to the various classes is to obtain a more predictable
cash flow to the individual tranches than exists with the underlying collateral
of the CMO. As a general rule, the more predictable the cash flow is on a CMO
tranche, the lower the anticipated yield will be on that tranche at the time of
issuance relative to prevailing market yields on mortgage-backed securities.
The Fund may also invest in mortgage-backed security strips (MBS strips)
issued by the U.S. Government or its agencies or instrumentalities. MBS strips
are usually structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage assets. A common
type of stripped mortgage security will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yields to maturity on IOs and
POs are sensitive to the expected or anticipated rate of principal payments
(including prepayments) on the related underlying mortgage assets, and principal
payments may have a material effect on yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected.
In reliance on rules and interpretations of the Securities and Exchange
Commission (SEC), the Fund's investments in certain qualifying CMOs and REMICs
are not subject to the Investment Company Act's limitation on acquiring
interests in other investment companies.
The Fund may invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages.
The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. Government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.
FOREIGN SECURITIES
The Fund is permitted to invest in foreign corporate and government
securities. "Foreign Government securities" include debt securities issued or
guaranteed, as to payment of principal and interest, by governments,
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, Government Entities) of foreign
countries denominated in the currencies of such countries or in U.S. dollars
(including debt securities of a Government Entity in any such country
denominated in the currency of another such country).
A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "quasi-governmental entities" are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national government's
"full faith and credit" and general taxing powers. Examples of quasi-government
issuers include, among others, the Province of Ontario and the City of
Stockholm. "Foreign government securities" shall also include debt securities of
Government Entities denominated in European Currency Units. A European Currency
Unit represents specified amounts of the currencies of certain of the member
states of the European Community.
B-3
<PAGE>
If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of income
the Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. The Fund may, but need
not, enter into forward foreign currency exchange contracts, options on foreign
currencies and futures contracts on foreign currencies and related options, for
hedging purposes, including: locking-in the U.S. dollar price of the purchase or
sale of securities denominated in a foreign currency; locking-in the U.S. dollar
equivalent of dividends to be paid on such securities which are held by the
Fund; and protecting the U.S. dollar value of such securities which are held by
the Fund.
OPTIONS ON SECURITIES
The Fund may purchase and write (i.e., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
pursuant to which the purchaser, in return for a premium paid, has the right to
buy the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract which gives the purchaser, in return for a premium, the right
to sell the underlying security at a specified price during the term of the
option. The writer of the put, who receives the premium, has the obligation to
buy the underlying security upon exercise at the exercise price. The Fund will
generally write put options when its investment adviser desires to invest in the
underlying security. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same security
as the call written where the exercise price of the call held is equal to or
less than the exercise price of the call written or greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
U.S. Government securities or other liquid high-grade debt obligations in a
segregated account with its Custodian. A put option written by the Fund is
"covered" if the Fund maintains cash or liquid securities with a value equal to
the exercise price in a segregated account with its Custodian, or else holds on
a share-for-share basis a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written. "Liquid securities," as used in the Fund's prospectus and
statement of additional information include U.S. Government securities, equity
securities and investment-grade debt obligations.
If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to pledge
for the benefit of the broker the underlying security or other assets in
accordance with the rules of the relevant exchange or clearinghouse, such as The
Options Clearing Corporation (OCC), an institution created to interpose itself
between buyers and sellers of options in the United States. Technically, the
clearinghouse assumes the other side of every purchase and sale transaction on
an exchange and, by doing so, guarantees the transaction.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction
B-4
<PAGE>
if the price of the transaction is more than the premium received from writing
the option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option may be offset in whole or in part if the Fund holds
the underlying security by appreciation of the underlying security owned by the
Fund.
The Fund may also purchase a "protective put," i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value. The
loss to the Fund is limited to the premium paid for, and transaction costs in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
the security underlying the put rises, the profit the Fund realizes on the sale
of the security will be reduced by the premium paid for the put option less any
amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices, as described below.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Fund may also purchase and sell put and call options on securities indices
traded on U.S. or foreign securities exchanges or traded in the over-the-counter
markets. Options on securities indices are similar to options on securities
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the multiplier). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. All
settlements on options on indices are in cash, and gain or loss depends on price
movements in the securities market generally (or in a particular industry or
segment of the market) rather than price movements in individual securities.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers. Because exercises of index options are settled in cash, a
call writer cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of security prices in the market generally or in an
industry or market segment rather than movements in the price of a particular
security. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the securities market generally or of a particular industry.
This requires different skills and techniques than predicting changes in the
price of individual stocks.
RISKS OF TRANSACTIONS IN OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing
B-5
<PAGE>
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
The Fund intends to purchase and sell only those options which are cleared by
clearinghouses whose facilities are considered to be adequate to handle the
volume of options transactions.
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the policy of the Fund to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. A Fund
will not purchase or sell any index option contract unless and until, in the
investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities in
the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES
Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, the Fund will write call options on indices only
under the circumstances described below under "Limitations on Purchase and Sale
of Stock Options, Options on Stock Indices and Foreign Currencies and Futures
Contracts and Related Options."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of
such Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is
B-6
<PAGE>
able to sell stocks in its portfolio. As with stock options, the Fund will not
learn that an index option has been exercised until the day following the
exercise date but, unlike a call on stock where the Fund would be able to
deliver the underlying securities in settlement, the Fund may have to sell part
of its investment portfolio in order to make settlement in cash, and the price
of such investments might decline before they can be sold. This timing risk
makes certain strategies involving more than one option substantially more risky
with index options than with stock options. For example, even if an index call
which the Fund has written is "covered" by an index call held by the Fund with
the same strike price, the Fund will bear the risk that the level of the index
may decline between the close of trading on the date the exercise notice is
filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which, in
either case, would occur no earlier than the day following the day the exercise
notice was filed.
If the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising an
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts to
protect the value of its assets against future changes in the level of currency
exchange rates. The Fund may enter into such contracts on a spot, I.E., cash,
basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency.
A forward contract on foreign currency is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract at a price set on the date of
the contract.
The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of forward currency) of the
securities being hedged.
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund may be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the 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.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. If a Fund enters into a
hedging transaction as described above, the transaction will be "covered" by the
position being hedged, or the Fund's Custodian will place cash or liquid
securities into a segregated account of the Fund in an amount equal to
B-7
<PAGE>
the value of the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts (less the value of the covering positions,
if any). If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account will, at all times, equal the amount of the Fund's net
commitments with respect to such contracts.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of the
foreign currency and if the market value of the security is less than the amount
of foreign currency that the Fund is obligated to deliver, then it would be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase).
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward contract prices increase,
the Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. Of course, the Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities. It also should be recognized that this method
of protecting the value of the Fund's portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities which are unrelated to exchange rates. Additionally, although
such contracts tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
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.
FUTURES CONTRACTS
As a purchaser of a futures contract, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the futures contract
at a specified time in the future for a specified price. As a seller of a
futures contract, the Fund incurs an obligation to deliver the specified amount
of the underlying obligation at a specified time in return for an agreed upon
price. The Fund may purchase futures contracts on debt securities, including
U.S. Government securities, aggregates of debt securities, stock indices and
foreign currencies. The Fund may purchase futures contracts on stock indices and
foreign currencies.
The Fund will purchase or sell futures contracts for the purpose of hedging
its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates. If the investment adviser anticipates that interest
rates may rise and, concomitantly, the price of the Fund's portfolio securities
may fall, the Fund may sell a futures contract. If declining interest rates are
anticipated, the Fund may purchase a futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts. In addition, futures contracts will
be bought or sold in order to close out a short or long position in a
corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of security and the same delivery date. If the sale price
B-8
<PAGE>
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss. Similarly,
a futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security (or currency) and
the same delivery date. If the offsetting sale price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that the Fund will be able to enter into a closing transaction.
When the Fund enters into a futures contract it is initially required to
deposit with its Custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash or liquid securities
equal to approximately 2-3% of the contract amount. Initial margin requirements
are established by the Exchanges on which futures contracts trade and may, from
time to time, change. In addition, brokers may establish margin deposit
requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on a futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked-to-market daily and the
Fund may be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or liquid securities,
called "variation margin", in the name of the broker, which are reflective of
price fluctuations in the futures contract.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures contracts as a
hedging device. In the case of futures contracts on securities indices, the
correlation between the price of the futures contract and the movements in the
index may not be perfect. Therefore, a correct forecast of market trends by the
investment adviser may still not result in a successful hedging transaction.
Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close a futures position. In the
event the Fund could not close a futures position and the value of such position
declined, the Fund would be required to continue to make daily cash payments of
variation margin. Currently, index futures contracts are available on various
U.S. and foreign securities indices.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting the securities market
generally. If the Fund has insufficient cash to meet daily variation margin
requirements, it may need to sell securities to meet such requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time
when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. With respect to stock
indices, options are traded on futures contracts for various U.S. and foreign
stock indices including the S&P 500 Stock Index and the NYSE Composite Index.
B-9
<PAGE>
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS, OPTIONS ON STOCK INDICES AND
FOREIGN CURRENCIES AND FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may write put and call options on stocks only if they are covered
as described above, and such options must remain covered so long as the Fund is
obligated as a writer. The Fund will write put options on stock indices and
foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or liquid securities equal to or greater than the
aggregate exercise price of the puts. The Fund has undertaken with certain state
securities commissions that, so long as shares of the Fund are registered in
those states, it will not (a) write puts having aggregate exercise prices
greater than 25% of total net assets; or (b) purchase (i) put options on stocks
not held in its portfolio, (ii) put options on stock indices or foreign
currencies or (iii) call options on stocks, stock indices or foreign currencies
if, after any such purchase, the aggregate premiums paid for such options would
exceed 10% of the Fund's total net assets; provided, however, that the Fund may
purchase put options on stocks held by the Fund if after such purchase the
aggregate premiums paid for such options do not exceed 20% of the Fund's net
assets. The aggregate value of the securities underlying call options and the
obligations underlying put options (as of the date the options are sold) will
not exceed 25% of the Fund's net assets. In addition, the Fund will not enter
into futures contracts or related options if the aggregate initial margin and
premiums exceed 5% of the liquidation value of the Fund's total assets, taking
into account unrealized profits and losses on such contracts, provided, however,
that in the case of an option that is in-the-money, the in-the-money amount may
be excluded in computing such 5%. The above restriction does not apply to the
purchase or sale of futures contracts and related options for bona fide hedging
purposes, within the meaning of regulations of the Commodity Futures Trading
Commission. The Fund does not intend to purchase options on equity securities or
securities indices if the aggregate premiums paid for such outstanding options
would exceed 10% of the Fund's total assets.
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash or liquid securities, or a portfolio of stocks
substantially replicating the movement of the index, in the judgment of the
Fund's investment adviser, with a market value at the time the option is written
of not less than 100% of the current index value times the multiplier times the
number of contracts.
If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which are
stocks of issuers in such industry or market segment, and that, in the judgment
of the investment adviser, substantially replicate the movement of the index
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts. Such
stocks will include stocks which represent at least 50% of the weighting of the
industry or market segment index and will represent at least 50% of the Fund's
holdings in that industry or market segment. No individual security will
represent more than 15% of the amount so segregated, pledged or escrowed in the
case of broadly-based stock market index options or 25% of such amount in the
case of industry or market segment index options. If at the close of business on
any day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Fund will so segregate, escrow or pledge an amount
in cash or liquid securities equal in value to the difference. In addition, when
the Fund writes a call on an index which is in-the-money at the time the call is
written, the Fund will segregate with its Custodian or pledge to the broker as
collateral cash or liquid securities equal in value to the amount by which the
call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to the
Fund's obligation to segregate additional amounts in the event that the market
value of the qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A "qualified security" is an
equity security which is listed on a national securities exchange or listed on
NASDAQ against which the Fund has not written a stock call option and which has
not been hedged by the Fund by the sale of stock index futures. However, if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is equal to or less than the exercise price of the call written
or greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or liquid securities in a segregated account with
its Custodian, it will not be subject to the requirements described in this
paragraph.
POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of
B-10
<PAGE>
options in each class which may be written or purchased by a single investor or
group of investors acting in concert, regardless of whether the options are
written on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of futures contracts and options which the Fund may
write or purchase may be affected by the futures contracts and options written
or purchased by other investment advisory clients of the investment adviser. An
exchange, board of trade or other trading facility may order the liquidations of
positions found to be in excess of these limits, and it may impose certain other
sanctions.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest in money market instruments, including commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks, obligations issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities and repurchase agreements (described more
fully below). Such investments may be subject to certain risks, including future
political and economic developments, the possible imposition of withholding
taxes on interest income, the seizure or nationalization of foreign deposits and
foreign exchange controls or other restrictions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may purchase
or sell securities on a when-issued or delayed delivery basis, that is, delivery
and payment can take place a month or more after the date of the transaction.
The Fund will make commitments for such when-issued transactions only with the
intention of actually acquiring the securities. The Fund's Custodian will
maintain, in a separate account of the Fund, cash or liquid securities having a
value equal to or greater than such commitments. If a Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio security, incur a gain or loss
due to market fluctuations.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for an equal amount of the
securities of the same issuer as the securities sold short (a short sale
against-the-box), and that not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily to defer realization of gain or loss for federal
tax purposes. As a matter of current operating policy, the Fund does not intend
to engage in short sales other than short sales against-the-box. "How the Fund
Invests--Other Investments and Policies--Short Sales Against-the-Box" in the
Prospectus of the Fund.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by cash and liquid
securities. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The investment adviser will monitor the creditworthiness of such parties, under
the general supervision of the Board of Directors. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 33 1/3% of the value of
the Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral
(including a letter of credit) that is equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive payments in lieu of the interest and dividends of
the loaned securities, while at the same time earning interest either directly
from the borrower or on the collateral which will be invested in short-term
obligations.
A loan may be terminated by the Fund at any time. If the borrower fails to
maintain the requisite amount of collateral, the loan automatically terminates,
and the Fund could use the collateral to replace the securities while holding
the borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some
B-11
<PAGE>
cases loss of rights in the collateral should the borrower of the securities
fail financially. However, these loans of portfolio securities will only be made
to firms determined to be creditworthy pursuant to procedures approved by the
Board of Directors of the Fund. On termination of the loan, the borrower is
required to return the securities to the Fund, and any gain or loss in the
market price during the loan would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated at the time of the borrowing) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If the
Fund's asset coverage for borrowings falls below 300%, the Fund will take prompt
action to reduce its borrowings. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, the Fund may be required to sell
portfolio securities to reduce the debt and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint to sell
securities at that time. Such liquidations could cause the Fund to realize gains
on securities held for less than three months. Because no more than 30% of the
Fund's gross income may be derived from the sale or disposition of securities
held for less than three months to maintain the Fund's status as a regulated
investment company under the Internal Revenue Code, such gains would limit the
ability of the Fund to sell other securities held for less than three months
that the Fund might wish to sell. See "Taxes." The Fund will not purchase
portfolio securities when borrowings exceed 5% of the value of its total assets.
ILLIQUID SECURITIES
The Fund may not hold more than 15% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
B-12
<PAGE>
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). In addition, in order for commercial paper that is issued in reliance
on Section 4(2) of the Securities Act to be considered liquid, (i) it must be
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated, be of comparable quality in the
view of the investment adviser; and (ii) it must not be "traded flat" (i.e.,
without accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, the Fund does not intend to invest in such
securities. If a Fund does invest in securities of other investment companies,
shareholders of the Fund may be subject to duplicate management and advisory
fees. See "Investment Restrictions."
PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate is not expected to exceed 100%. The portfolio turnover rate is
generally the percentage computed by dividing the lesser of portfolio purchases
or sales (excluding all securities, including options, whose maturities or
expiration date at acquisition were one year or less) by the monthly average
value of the portfolio. High portfolio turnover (over 100%) involves
correspondingly greater brokerage commissions and other transaction costs, which
are borne directly by the Fund. In addition, high portfolio turnover may also
mean that a proportionately greater amount of distributions to shareholders will
be taxed as ordinary income rather than long-term capital gains compared to
investment companies with lower portfolio turnover. See "Portfolio Transactions
and Brokerage" and "Taxes."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to the Fund, the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a security
on margin.
2. Make short sales of securities or maintain a short position if, when
added together, more than 25% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales and (ii) allocated to segregated accounts in connection with
short sales. Short sales "against-the-box" are not subject to this limitation.
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20% of
the value of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, forward foreign currency exchange contracts and collateral
arrangements relating thereto, and collateral arrangements with respect to
futures contracts and options thereon and with respect to the writing of options
and obligations of the Fund to Directors pursuant to deferred compensation
arrangements are not deemed to be a pledge of assets subject to this
restriction.
B-13
<PAGE>
4. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (i) with respect to 75% of
the Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single issuer,
or (ii) 25% or more of the Fund's total assets (determined at the time of the
investment) would be invested in a single industry.
5. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase interests
in real estate limited partnerships which are not readily marketable.
6. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon, and forward
foreign currency exchange contracts.
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
8. Make investments for the purpose of exercising control or management.
9. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5% of
its total assets in any one investment company and will not have invested more
than 10% of its total assets (determined at the time of investment) in such
securities of one or more investment companies, or except as part of a merger,
consolidation or other acquisition.
10. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 33 1/3% of the Fund's total assets.
11. Purchase more than 10% of all outstanding voting securities of any one
issuer.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
In order to comply with certain "blue sky" restrictions, and only to the
extent that such restrictions remain applicable to the Fund, the Fund will not
as a matter of operating policy:
1. Invest in interests in oil, gas or other mineral exploration, leases or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
2. Invest in securities of any issuer if any officer or Director of the
Fund or the Fund's Manager or Subadviser (as defined below) 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.
3. Purchase warrants if as a result the Fund would then have more than 5%
of its assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange or a major foreign exchange will be limited to 2% of the Fund's net
assets (determined at the time of investment). For purposes of this limitation,
warrants acquired in units or attached to securities are deemed to be without
value.
4. Invest in securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and equity
securities of issuers which are not readily marketable, if more than 5% of its
total assets would be invested in such securities.
B-14
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST 5 YEARS
- ------------------------------ ------------------------------ -----------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (71) Director President and Director of BMC Fund, Inc., a closed-end investment
company; prior thereto, Vice Chairman of Broyhill Furniture
Industries, Inc.; Certified Public Accountant; Secretary and
Treasurer of Broyhill Family Foundation, Inc.; Member of the
Board of Trustees of Mars Hill College; President and Director
of First Financial Fund, Inc. and The High Yield Plus Inc.
Delayne Dedrick Gold (58) Director Marketing and Management Consultant.
*Robert F. Gunia (49) President and Director Director (since January 1989), Chief Administrative Officer
(since July 1990) and Executive Vice President, Treasurer and
Chief Financial Officer (since June 1987) of PMF; Comptroller of
Prudential Investments (since 1996); Senior Vice President
(since March 1987) of Prudential Securities Incorporated
(Prudential Securities); Executive Vice President, Treasurer and
Comptroller (since March 1991) of Prudential Mutual Fund
Distributors, Inc. (PMFD); Director (since June 1987) of
Prudential Mutual Fund Services, Inc. (PMFS); Vice President and
Director of Nicholas-Applegate Fund, Inc., and The Asia Pacific
Fund, Inc. (since May 1989).
Donald D. Lennox (77) Director Chairman (since February 1990) and Director (since April 1989) of
International Imaging Materials, Inc. (thermal transfer ribbon
manufacturer); Retired Chairman, Chief Executive Officer and
Director of Schlegel Corporation (industrial manufacturing)
(March 1987-February 1989); Director of Gleason Corporation,
Personal Sound Technologies, Inc. and The High Yield Income
Fund, Inc.
Douglas H. McCorkindale (57) Director Vice Chairman, Gannett Co. Inc. (publishing and media)(since
March 1984); Director of Gannett Co. Inc., Frontier Corporation
and Continental Airlines, Inc.
*Mendel A. Melzer (35) Director Chief Financial Officer (since November 1995) of the Money
Management Group of Prudential; formerly Senior Vice President
and Chief Financial Officer of Prudential Preferred Financial
Services (April 1993 - November 1995); Managing Director of
Prudential Investment Advisors (April 1991 - April 1993); Senior
Vice President of Prudential Capital Corporation (July 1989 -
April 1991); Chairman and Director of Prudential Series Fund,
Inc.
Thomas T. Mooney (54) Director President of the Greater Rochester Metro Chamber of Commerce;
former Rochester City Manager; Trustee of Center for
Governmental Research, Inc.; Director of Blue Cross of
Rochester, Monroe County Water Authority, Rochester Jobs, Inc.,
Executive Service Corps of Rochester, Monroe County Industrial
Development Corporation, Northeast Midwest Institute, The
Business Council of New York State, First Financial Fund, Inc.
Stephen P. Munn (54) Director Chairman (since January 1994), Director and President (since
1988) and Chief Executive Officer (1988 - December 1993) of
Carlisle Companies Incorporated (manufacturer of industrial
products).
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST 5 YEARS
- ------------------------------ ------------------------------ -----------------------------------------------------------------
<S> <C> <C>
*+Richard A. Redeker (53) Director President, Chief Executive Officer and Director (since October
1993) of PMF; Executive Vice President, Director and Member of
the Operating Committee (since October 1993), Prudential
Securities; Director (since October 1993) of Prudential
Securities Group, Inc; formerly Senior Executive Vice President
and Director of Kemper Financial Services, Inc. (September 1978
- September 1993); Director, The High Yield Income Fund, Inc.
and The Target Portfolio Trust.**
Robin B. Smith (57) Director Chairman (since August 1996), Chief Executive Officer (since
January 1988) and formerly President (1981-1996) of Publishers
Clearing House; Director of BellSouth Corporation, The Omnicom
Group, Inc., Texaco Inc., Spring Industries Inc., First
Financial Fund, Inc., The High Yield Income Fund, Inc., The High
Yield Plus Fund, Inc., Trustee of The Target Portfolio Trust.
Louis A. Weil, III (55) Director President and Chief Executive Officer (since January 1996) and
Director (since September 1991) of Central Newspapers, Inc.;
Chairman of the Board (since January 1996), Publisher and Chief
Executive Officer (August 1991 - December 1995) of Phoenix
Newspapers, Inc.; formerly Publisher of Time Magazine (May 1989
- March 1991); formerly President, Publisher & CEO of The
Detroit News (February 1986 - August 1989); formerly member of
the Advisory Board, Chase Manhattan Bank-Westchester.
Clay T. Whitehead (57) Director President, National Exchange Inc. (new business development firm)
(since May 1983)
Robert A. Nisi (34) Assistant Secretary Vice President and Associate General Counsel (since April 1995)
of PMF; Associate with the law firms White & Case (April 1994 --
April 1995) and Reid & Priest (May 1991 -- April 1994).
S. Jane Rose (50) Secretary Senior Vice President (since January 1991) and Senior Counsel
(since June 1987) of PMF; Senior Vice President and Senior
Counsel of Prudential Securities (since July 1992); formerly
Vice President and Associate General Counsel of Prudential
Securities.
Grace Torres (37) Treasurer and Principal First Vice President (since March 1994) of PMF; First Vice
Financial and Accounting President (since March 1994) of Prudential Securities; formerly
Officer Vice President of Bankers Trust Corporation (July 1989-March
1994).
</TABLE>
- ------------
* "Interested" Director, as defined in the Investment Company Act, by reason of
his or her affiliation with Prudential Securities or PMF.
** Unless otherwise indicated, the address of the Directors and Officers is c/o
Prudential Mutual Funds, Gateway Center 2, Newark, New Jersey 07102.
+Mr. Redeker has resigned as President and Chief Executive Officer and
Director of PMF effective on or before December 31, 1996. Although he will no
longer oversee the operations of the Manager on a day-to-day basis, it is
anticipated that Mr. Redeker will remain associated with PMF and Prudential and
will continue to serve as Director/Trustee of the Funds.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities.
B-16
<PAGE>
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," oversee such actions and decide on general policy.
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The Fund pays each of its Directors who is not an affiliated person of PMF
or The Prudential Investment Corporation (PIC or the Subadviser) annual
compensation of $6,000, in addition to certain out-of-pocket expenses.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills
at the beginning of each calendar quarter or, pursuant to an SEC exemptive
order, at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72.
The following table sets forth the estimated aggregate compensation
estimated to be paid by the Fund for the fiscal year ending October 31, 1997 to
the Directors who are not affiliated with the Manager and the aggregate
compensation paid to such Directors for service on the boards of all other funds
managed by Prudential Mutual Fund Management, LLC (Fund Complex) for the
calendar year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO TRUSTEES
- ---------------------------------------------------- ------------- ----------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Edward D. Beach Director $ 6,000 None N/A $ 183,500(23/43)*
Delayne Dedrick Gold Director $ 6,000 None N/A $ 183,250(24/45)*
Donald D. Lennox Director $ 6,000 None N/A $ 86,250(10/22)*
Douglas H. McCorkindale Director $ 6,000 None N/A $ 63,750(7/10)*
Thomas T. Mooney Director $ 6,000 None N/A $ 125,625(14/19)*
Stephen P. Munn Director $ 6,000 None N/A $ 39,375(6/18)*
Robin B. Smith Director $ 6,000 None N/A $ 100,741(10/19)*
Louis A. Weil, III Director $ 6,000 None N/A $ 93,750(11/16)*
Clay T. Whitehead Director $ 6,000 None N/A $ 35,500(4/5)*
</TABLE>
- ------------
* Indicates number of funds/portfolios in Fund Complex to which aggregate
compensation relates.
As of October 31, 1996, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund. As of such date, PMF
owned all of the Fund's outstanding shares and controlled the Fund.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, LLC. (PMF or
the Manager), Gateway Center 2, Newark, New Jersey 07102. PMF serves as manager
to all of the other investment companies that, together with the Funds, comprise
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus of the Fund. As of September 30, 1996, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $52 billion. According to the Investment Company Institute, as
of December 31, 1995, Prudential Mutual Funds was the 13th largest family of
mutual funds in the United States.
PMF is a subsidiary of Prudential Securities Incorporated and The Prudential
Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc.
B-17
<PAGE>
(PMFS or the Transfer Agent) and Prudential Mutual Fund Investment Management,
Inc. PMFS serves as the transfer agent for the Prudential Mutual Funds and, in
addition, provides customer service, recordkeeping and management and
administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities and other assets. In
connection therewith, PMF is obligated to keep certain books and records of the
Fund. PMF also administers the Fund's corporate affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian (the Custodian), and
Prudential Mutual Fund Services, Inc., the Fund's transfer and dividend
disbursing agent. The management services of PMF for the Fund are not exclusive
under the terms of the Management Agreement and PMF is free to, and does, render
management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .60 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of a Fund (including the fees of PMF, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Fund. Currently, the Fund
believes that the most restrictive expense limitation of state securities
commissions is 2 1/2% of a Fund's average daily net assets up to $30 million, 2%
of the next $70 million of such assets and 1 1/2% of such assets in excess of
$100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and the Manager,
except the fees and expenses of Directors who are not affiliated persons of PMF
or the Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of a Fund's business, other than those assumed by a Fund as
described below; and
(c) the fees payable to the Subadviser pursuant to the Subadvisory Agreement
between PMF and PIC (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) certain organization expenses of the Fund and the fees
and expenses involved in registering and maintaining registration of the Fund
and of its shares with the SEC, registering the Fund as a broker or dealer and
qualifying its shares under state securities laws, including the preparation and
printing of the Fund's registration statements and prospectuses for such
purposes, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders in the amount necessary for distribution to the shareholders, (l)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business and (m) distribution
fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years
B-18
<PAGE>
from the date of execution only so long as such continuance is specifically
approved at least annually in conformity with the Investment Company Act. The
Fund's Management Agreement was approved by the Board of Directors of the Fund,
including all of the Directors who are not parties to the contract or interested
persons of any such party on October 12th, 1996, and by the initial shareholder
of the Fund on October , 1996.
PMF has entered into the Subadvisory Agreement with PIC, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. Under the Subadvisory Agreement, PIC, subject to the
supervision of PMF, is responsible for managing the assets of the Fund in
accordance with its investment objectives, investment program and policies. PIC
determines what securities and other instruments are purchased and sold for the
Fund and is responsible for obtaining and evaluating financial data relevant to
the Fund. PMF continues to have responsibility for all investment advisory
services pursuant to the Management Agreement. Under the Subadvisory Agreement,
PMF compensates PIC for its services at an annual rate of .30 of 1% of the
Fund's average daily net assets up to and including $300 million and .25 of 1%
of the Fund's average daily net assets in excess of $300 million.
The Subadvisory Agreement was approved by the Board of Directors of the
Fund, including all of the Directors who are not parties to the contract or
interested persons of any such party on October 12, 1996, and by the initial
shareholder of that Fund on October , 1996.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), Prudential Securities (also the Distributor)
incurs the expenses of distributing the Fund's Class A, Class B and Class C
shares. See "How the Fund is Managed--Distributor" in the Prospectus of the
Fund. Prudential Securities serves as the Distributor of Class Z shares and
incurs the expenses of distributing the Class Z shares under a Distribution
Agreement with the Fund, none of which are reimbursed by or paid for by the
Fund.
The Class A Plan provides that (i) .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1%. The
Class B and Class C Plans provide that (i) .25 of 1% of the average daily net
assets of the Class B and Class C shares, respectively, may be paid as a service
fee and (ii) .75 of 1% (not including the service fee) may be paid for
distribution-related expenses with respect to the Class B and Class C shares,
respectively (asset-based sales charge).
The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
60 days', nor less than 30 days' written notice to any other party to the Plans.
The Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class, and all material amendments are required to be approved by the
Board of Directors in the manner described above. Each Plan will automatically
terminate in the event of its assignment. A Fund will not be obligated to pay
expenses incurred under any Plan if it is terminated or not continued.
B-19
<PAGE>
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of a Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of Rule
12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend solicitation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Texas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. In the case of
Class B shares, interest charges equal to the prime rate plus one percent per
annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge with respect to
Class B and Class C shares of the Fund may not exceed .75 of 1%. The 6.25%
limitation applies to a Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any class,
all sales charges on shares of that class would be suspended.
B-20
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in this
section includes the Subadviser. Broker-dealers may receive negotiated brokerage
commissions on Fund portfolio transactions, including options and the purchase
and sale of underlying securities upon the exercise of options. On foreign
securities exchanges, commissions may be fixed. Orders may be directed to any
broker or futures commission merchant including, to the extent and in the manner
permitted by applicable law, Prudential Securities and its affiliates.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. A Fund will not deal with Prudential
Securities or any affiliate in any transaction in which Prudential Securities or
any affiliate acts as principal, except in accordance with rules of the SEC.
Thus, it will not deal with Prudential Securities acting as market maker, and it
will not execute a negotiated trade with Prudential Securities if execution
involves Prudential Securities' acting as principal with respect to any part of
a Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an affiliate, during the existence
of the syndicate, is a principal underwriter (as defined in the Investment
Company Act), except in accordance with rules of the SEC. This limitation, in
the opinion of the Fund, will not significantly affect a Fund's ability to
pursue its present investment objective. However, in the future in other
circumstances, a Fund may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.
In placing orders for portfolio securities of a Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of a Fund, the Manager or the Manager's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Manager in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for a Fund
may be used in managing other investment accounts. Conversely, brokers, dealers
or futures commission merchants furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than a Fund's, and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing investment
management for a Fund. Commission rates are established pursuant to negotiations
with the broker, dealer or futures commission merchant based on the quality and
quantity of execution services provided by the broker in the light of generally
prevailing rates. The Manager's policy is to pay higher commissions to brokers,
other than Prudential Securities, for particular transactions than might be
charged if a different broker had been selected, on occasions when, in the
Manager's opinion, this policy furthers the objective of obtaining best price
and execution. In addition, the Manager is authorized to pay higher commissions
on brokerage transactions for a Fund to brokers other than Prudential Securities
(or any affiliate) in order to secure research and investment services described
above, subject to review by the Fund's Board of Directors from time to time as
to the extent and continuation of this practice. The allocation or orders among
brokers and the commission rates paid are reviewed periodically by the Fund's
Board of Directors. The Fund will not pay up for research in principal
transactions.
Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a securities broker or futures commission merchant for the
Fund. In order for Prudential Securities (or any affiliate) to effect any
portfolio transactions for a Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or futures commission
merchant in a commensurate arm's-length transaction. Furthermore, the Board of
Directors of the Fund, including a majority of the Directors who are not
"interested" persons, has adopted procedures which are reasonably designed to
provide that any commissions,
B-21
<PAGE>
fees or other remuneration paid to Prudential Securities (or any affiliate) are
consistent with the foregoing standard. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for a
Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to a Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential Securities
are also subject to such fiduciary standards as may be imposed by applicable
law.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of a Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares of the Fund
are offered to a limited group of investors at net asset value without any sales
charges. See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus of the Fund.
Each class represents an interest in the same assets of a Fund and is
identical in all respects except that (i) each class (with the exception of
Class Z shares) is subject to different sales charges and distribution and/or
service expenses, which may affect performance, (ii) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. See "Distributor." Each
class also has separate exchange privileges. See "Shareholder Investment
Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 5% and Class
B*, Class C* and Class Z shares are sold at net asset value. Using the net asset
value of the Fund at March 31, 1996, the maximum offering price of the Fund's
shares is as follows:
<TABLE>
<CAPTION>
PRUDENTIAL
SELECTED
GROWTH FUND
-----------------
<S> <C>
CLASS A
Net asset value and redemption price per Class A share............................ $ 10.00
Maximum sales charge (5% of offering price)....................................... .53
------
Offering price to public.......................................................... $ 10.53
------
------
CLASS B
Net asset value, redemption price and offering price per Class B share*........... $ 10.00
------
------
CLASS C
Net asset value, redemption price and offering price per Class C share*........... $ 10.00
------
------
CLASS Z
Net asset value, offering price and redemption price per Class Z share............ $ 10.00
------
------
<FN>
--------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
</TABLE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of a Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus of the Fund.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
B-22
<PAGE>
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be controlled
by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code and deferred compensation and annuity plans
under Sections 457 and 403(b)(7) of the Internal Revenue Code.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of a
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. The value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. The value of existing holdings for
purposes of determining the reduced sales charge is calculated using the maximum
offering or price (net asset value plus maximum sales charge) as of the previous
business day. See "How the Fund Values Its Shares" in the Prospectus of each
Fund. The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Rights of Accumulation are
not available to individual participants in any retirement or group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of a Fund and shares of other Prudential Mutual
Funds. All shares of a Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) which were previously purchased and are still owned are also included
in determining the applicable reduction. However, the value of shares held
directly with the Transfer Agent and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held either
directly with the Transfer Agent or through Prudential Securities. The
Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment, except in the case of retirement and group plans where the employer
or plan sponsor will be responsible for paying any applicable sales charge.
Escrowed Class A shares totaling 5% of the dollar amount of the Letter of Intent
will be held by the Transfer Agent in the name of the purchaser. The effective
date of a Letter of Intent may be back-dated up to 90 days, in order that any
investments made during this 90-day period, valued at the purchaser's cost, can
be applied to the fulfillment of the Letter of Intent goal, except in the case
of retirement and group plans.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (or the employer or
plan sponsor in the case
B-23
<PAGE>
of any retirement or group plan) is required to pay the difference between the
sales charge otherwise applicable to the purchases made during this period and
sales charges actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrowed
shares to obtain such difference. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The contingent deferred sales charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit the
supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate or,
in the case of a trust, a copy of the grantor's
death certificate, plus a copy of the trust
agreement identifying the grantor.
Disability - An individual will be A copy of the Social Security Administration award
considered disabled if he or she is letter or a letter from a physician on the
unable to engage in any substantial physician's letterhead stating that the shareholder
gainful activity by reason of any (or, in the case of a trust, the grantor) is
medically determinable physical or permanently disabled. The letter must also indicate
mental impairment which can be expected the date of disability.
to result in death or to be of
long-continued and indefinite duration.
Distribution from an IRA or 403(b) A copy of the distribution form from the custodial
Custodial Account firm indicating (i) the date of birth of the
shareholder and (ii) that the shareholder is over
age 59 and is taking a normal distribution--signed
by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the
plan administrator/ trustee on company letterhead
indicating the amount of the excess and whether or
not taxes have been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. For the convenience
of investors, all dividends and distributions are automatically reinvested in
full and fractional shares of the applicable Fund. An investor may direct the
Transfer Agent in writing not less than five full business days prior to the
record date to have subsequent dividends or distributions sent in cash rather
than reinvested. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payment will be
made directly to the dealer. Any shareholder who receives a cash payment
representing a dividend or distribution may reinvest such dividend or
distribution at net asset value by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. Such investment will be
made at the net asset value per share next determined after receipt of the check
or proceeds by the Transfer Agent. Such shareholder will receive credit for any
contingent deferred sales charge paid in connection with the amount of proceeds
being reinvested.
EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the
Exchange Privilege. The Fund makes available to its shareholders the privilege
of exchanging their shares of a Fund for shares of certain other Prudential
Mutual Funds, including one
B-24
<PAGE>
or more specified money market funds, subject in each case to the minimum
investment requirements of such funds. Shares of such other Prudential Mutual
Funds may also be exchanged for shares of a Fund. All exchanges are made on the
basis of relative net asset value next determined after receipt of an order in
proper form. An exchange will be treated as a redemption and purchase for tax
purposes. Shares may be exchanged for shares of another fund only if shares of
such fund may legally be sold under applicable state laws. For retirement and
group plans having a limited menu of Prudential Mutual Funds, the Exchange
Privilege is available for those funds eligible for investment in the particular
program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of a Fund may exchange their Class A shares for shares
of certain other Prudential Mutual Funds, shares of Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the Exchange Privilege only to acquire Class A shares of
the Prudential Mutual Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of a Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class B and Class C shares acquired as a
result of the exchange. The applicable sales charge will be that imposed by the
fund in which shares were initially purchased and the purchase date will be
deemed to be the date of the initial purchase, rather than the date of the
exchange.
Class B and Class C shares of a Fund may also be exchanged for Class B and
Class C shares, respectively, of an eligible money market fund without
imposition of any CDSC at the time of exchange. Upon subsequent redemption from
such money market fund or after re-exchange into a Fund, such shares will be
subject to the CDSC calculated without regard to the time such shares were held
in the money market fund. In order to minimize the period of time in which
shares are subject to a CDSC, shares exchanged out of the money market fund will
be exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. In measuring the time period
shares are held in a money market fund and "tolled" for purposes of calculating
the CDSC holding period, exchanges are deemed to have been made on the last day
of the month. Thus, if shares are exchanged into a Fund from a money market fund
during the month (and are held in the Fund at the end of the month), the entire
month will be included in the CDSC holding period. Conversely, if shares are
exchanged into a money market fund prior to the last day of the month (and are
held in the money market fund on the last day of the month), the entire month
will be excluded from the CDSC holding period.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares of
any fund participating in the Class B or Class C exchange privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.
B-25
<PAGE>
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec.
The Exchange Privilege may be modified, terminated or suspended on 60 days'
notice, and any fund, including the Fund, or the Distributor, has the right to
reject any exchange application relating to such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.......................................................... $ 110 $ 165 $ 220 $ 275
20 Years.......................................................... 176 264 352 440
15 Years.......................................................... 296 444 592 740
10 Years.......................................................... 555 833 1,110 1,388
5 Years.......................................................... 1,371 2,057 2,742 3,428
<FN>
- ------------
(1)Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.
(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of a Fund. The investment
return and principal value of an investment will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
See "Automatic Savings Accumulation Plan."
</TABLE>
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, an investor may
arrange to have a fixed amount automatically invested in shares of a Fund
monthly by authorizing his or her bank account or Prudential Securities Account
(including a Command Account) to be debited to invest specified dollar amounts
in shares of a Fund. The investor's bank must be a member of the Automatic
Clearing House System. Stock certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares may be subject to a CDSC. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus of the Fund.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."
B-26
<PAGE>
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the plan, particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS. Various qualified retirement plans, including
a 401(k) plan, self-directed individual retirement accounts and "tax-deferred
accounts" under Section 403(b)(7) of the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code) are available through the Distributor. These
plans are for use by both self-employed individuals and corporate employers.
These plans permit either self-direction of accounts by participants, or a
pooled account arrangement. Information regarding the establishment of these
plans, and the administration, custodial fees an other details are available
from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------------------ ---------- ----------
<S> <C> <C>
10 years................ $ 26,165 $ 31,291
15 years................ 44,676 58,649
20 years................ 68,109 98,846
25 years................ 97,780 157,909
30 years................ 135,346 244,692
- ------------
(1)The chart is for illustrative purposes only and does not represent the
performance of a Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
the IRA account will be subject to tax when withdrawn from the account.
</TABLE>
MUTUAL FUND PROGRAMS
From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter promoted collectively. Typically, these programs are
created with an investment theme, e.g., to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. A Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities
B-27
<PAGE>
Financial Advisor or Prudential/Pruco Securities Representative concerning the
appropriate blend of portfolios for them. If investors elect to purchase the
individual mutual funds that constitute the program in an investment ratio
different from that offered by the program, the standard minimum investment
requirements for the individual mutual funds will apply.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents.
Options on stock and stock indices traded on an exchange are valued at the mean
between the most recently quoted bid and asked prices on the respective exchange
and futures contracts and options thereon are valued at their last sales prices
as of the close of the commodities exchange or board of trade. Should an
extraordinary event, which is likely to affect the value of the security, occur
after the close of an exchange on which a portfolio security is traded, such
security will be valued at fair value considering factors determined in good
faith by the investment adviser under procedures established by and under the
general supervision of the Fund's Board of Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of 60 days or more, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of a Fund's portfolio securities do not affect net asset value. In the event the
New York Stock Exchange closes early on any business day, the net asset value of
a Fund's shares shall be determined at a time between such closing and 4:15
P.M., New York time.
Net asset value is calculated separately for each class. The net asset value
of Class B and Class C shares will generally be lower than the net asset value
of Class A or Class Z shares as a result of the larger distribution-related fee
to which Class B and Class C shares are subject and the net asset value of Class
A shares will generally be lower than that of Class Z shares because Class Z
shares are not subject to any distribution or service fee. It is expected,
however, that the net asset value per share of each class will tend to converge
immediately after the recording of dividends which will differ by approximately
the amount of the distribution and/or service fee expense accrual differential
among the classes.
TAXES
The Fund has elected to qualify (or intends to elect to qualify) and intends
to remain qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code. This relieves the Fund (but not its shareholders) from
paying federal income tax on income which is distributed to shareholders and
permits net long-term capital gains of the Fund (i.e., the excess of net
long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a Fund's annual gross income (without reduction
for losses from the sale or other disposition of securities) be derived from
interest, dividends, payments with respect to securities loans, and gains from
the sale or other disposition of securities or options thereon or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities or currencies; (b) the Fund derive less than 30% of its gross
income from gains
B-28
<PAGE>
(without reduction for losses) from the sale or other disposition of securities,
options thereon, futures contracts, options thereon, forward contracts and
foreign currencies held for less than three months (except for foreign
currencies directly related to the Fund's business of investing in foreign
securities) (the short-short rule); (c) the Fund diversify its holdings so that,
at the end of each quarter of the taxable year (i) at least 50% of the market
value of the Fund's assets is represented by cash, U.S. Government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the market value of the Fund's assets and 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 one issuer (other than
U.S. Government securities); and (d) the Fund distribute to its shareholders at
least 90% of its net investment income (including short-term capital gains)
other than long-term capital gains in each year.
Gains or losses on sales of securities by a Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon or makes a short sale against-the-box. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as Section 1256 contracts). If an
option written by a Fund on securities lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will generally realize short-term capital gain or loss. If securities are
sold by a Fund pursuant to the exercise of a call option written by it, the Fund
will include the premium received in the sale proceeds of the securities
delivered in determining the amount of gain or loss on the sale. Certain of a
Fund's transactions may be subject to wash sale, short sale, conversion
transaction and straddle provisions of the Internal Revenue Code. In addition,
debt securities acquired by a Fund may be subject to original issue discount and
market discount rules.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which a Fund
may invest. See "Investment Objective and Policies." These investments will
generally constitute Section 1256 contracts and will be required to be "marked
to market" for federal income tax purposes at the end of a Fund's taxable year;
that is, treated as having been sold at market value. Except with respect to
forward foreign currency exchange contracts, 60% of any gain or loss recognized
on such deemed sales and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss.
Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices will be capital gain or loss and will be
long-term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain wash
sale and short sale provisions of the Internal Revenue Code. In the case of a
straddle, a Fund may be required to defer the recognition of losses on positions
it holds to the extent of any unrecognized gain on offsetting positions held by
the Fund. The conversion transaction rules may apply to certain transactions to
treat all or a portion of the gain thereon as ordinary income rather than as
capital gain.
A Fund's ability to hold foreign currencies or engage in hedging activities
may be limited by the 30% short-short rule discussed above.
A "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If a Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock or of any gain from disposition of the stock (collectively, PFIC
income), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders. Proposed Treasury regulations provide that a Fund may make a
"mark-to-market" election with respect to any stock it holds of a PFIC. If the
election is in effect, at the end of the Fund's taxable year, the Fund will
recognize the amount of gains, if any, with respect to PFIC stock. No loss will
be recognized on PFIC stock. Alternatively, a Fund may elect to treat any PFIC
in which it invests as a "qualified electing fund," in which case, in lieu of
the foregoing tax and interest obligation, the Fund will be required to include
in income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain, even if they are not distributed to the
Fund; those amounts would be subject to the distribution requirements applicable
to the Fund described above. It may be very difficult, if not impossible, to
make this election because of certain requirements thereof.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time a Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and
B-29
<PAGE>
the time the Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also may be treated as ordinary gain or loss. These gains,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of a Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital gain. If Section
988 losses exceed other investment company taxable income during a taxable year,
a Fund would not be able to make any ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as a
return of capital to shareholders, rather than as an ordinary dividend, reducing
each shareholder's basis in his or her Fund shares.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements, a
Fund will be subject to a nondeductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which a Fund pays income tax
is treated as distributed.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by the
per share amount of the dividends. Furthermore, such dividends, although in
effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of a Fund, the investor should carefully consider the
impact of dividends, including capital gains distributions, which are expected
to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of a Fund by a
shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of a Fund and sells or otherwise disposes
of such shares within 90 days of acquisition may not be allowed to include
certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of such
Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Capital gain dividends paid to a foreign shareholder
are generally not subject to withholding tax. A foreign shareholder will,
however, be required to pay U.S. income tax on any dividends and capital gain
distributions which are effectively connected with a U.S. trade or business of
the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent a Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. A Fund does not expect to
meet the requirements of the Internal Revenue Code for "passing-through" to its
shareholders any foreign income taxes paid.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
B-30
<PAGE>
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. A Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus of the Fund.
Average annual total return is computed according to the following formula:
P(1+T)to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1, 5
or 10 year periods (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
AGGREGATE TOTAL RETURN. A Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus of the Fund.
Aggregate total return represents the cumulative change in the value of an
investment in a Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1, 5
or 10 year periods (or fractional portion thereof).
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
B-31
<PAGE>
From time to time, the performance of a Fund may be measured against various
indices. Set forth below is a chart which compares the performance of different
types of investments over the long term and the rate of inflation.(1)
[CHART]
- ------------
(1)Source: Ibbotson Associates STOCKS, BONDS, BILLS AND INFLATION--1995
YEARBOOK (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock returns
are based on the Standard and Poor's 500 Stock Index, a market-weighted,
unmanaged index of 500 common stocks in a variety of industry sectors. It is a
commonly used indicator of broad stock price movements. This chart is for
illustrative purposes only and is not intended to represent the performance of
any particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities of each
Fund and cash and in that capacity maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Subcustodians provide
custodial services for a Fund's foreign assets held outside the United States.
See "How the Fund is Managed--Custodian and Transfer and Dividend Disbursing
Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of each Fund.
PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and related
functions. For these services, PMFS receives an annual fee per shareholder
account of $9.50, a new account set-up fee for each manually established account
of $2.00 and a monthly inactive zero balance account fee per shareholder account
of $.20. PMFS is also reimbursed for its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communication expenses
and other costs.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Fund's independent accountants, and in that capacity audits the
annual reports of the Fund.
B-32
<PAGE>
REPORTS OF INDEPENDENT ACCOUNTANTS
The Shareholder and Board of Directors of
Prudential Emerging Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Prudential
Emerging Growth Fund, Inc. (the "Fund") at October 21, 1996. This financial
statement is the responsibility of the Fund's management; our responsibility is
to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
October 25, 1996
B-33
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
1996
----------
<S> <C>
ASSETS
Cash........................................................................................................ $ 100,000
Deferred organization costs (Note 1)........................................................................ 250,000
----------
Total assets............................................................................................ 350,000
----------
LIABILITIES
Deferred organization costs payable (Note 1)................................................................ 250,000
----------
Net Assets (Note 1)
Applicable to 10,000 shares of common stock............................................................... $ 100,000
----------
----------
Calculation of Offering Price
Class A:
Net asset value and redemption price per Class A share.................................................... $ 10.00
Maximum sales charge (5.0% of offering price)............................................................. .53
----------
Offering price to public.................................................................................. $ 10.53
----------
----------
Class B:
Net asset value, offering price and redemption price per Class B share.................................... $ 10.00
----------
----------
Class C:
Net asset value, offering price and redemption price per Class C share.................................... $ 10.00
----------
----------
Class Z:
Net asset value, offering price and redemption price per Class Z share.................................... $ 10.00
----------
----------
</TABLE>
See Notes to Financial Statement.
B-34
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENT
NOTE 1. Prudential Emerging Growth Fund, Inc. ("the Fund"), which was
incorporated in Maryland on August 23, 1996, is an open-end, diversified
management investment company. The Fund has had no significant operation other
than the issuance of 2,500 shares each of Class A, Class B, Class C and Class Z
common stock for $100,000 on October 21, 1996 to Prudential Mutual Fund
Management, LLC. (PMF). There are 2 billion shares of $.001 par value common
stock authorized divided into four classes, designated Class A, Class B, Class C
and Class Z, each of which consists of 1 billion, 500 million, 300 million and
200 million authorized shares, respectively.
Costs incurred and expected to be incurred in connection with the
organization and offering of the Fund will be paid initially by PMF and will be
repaid to PMF upon commencement of investment operations. Offering costs will be
deferred and amortized over a period not to exceed 12 months. Organizational
costs will be deferred and amortized over the period of benefit not to exceed 60
months from the date the Fund commences investment operations. If any of the
initial shares of the Fund are redeemed by any holder thereof during the period
of amortization of organization expenses, the redemption proceeds will be
reduced by the pro-rata amount of unamortized organization expenses based on the
number of initial shares being redeemed to the number of the initial shares
outstanding.
NOTE 2. AGREEMENTS The Fund has entered into a management agreement with
PMF. PMF is an indirect wholly-owned subsidiary of The Prudential Insurance
Company of America (Prudential).
The management fee paid PMF will be computed daily and payable monthly, at
an annual rate of .60 to 1% of the average daily net assets of the Fund.
Pursuant to a subadvisory agreement between PMF and The Prudential
Investment Corporation (PIC), a wholly-owned subsidiary of Prudential, PIC
furnishes investment advisory services pursuant to the management agreement and
supervises PIC's performance of such services. PMF pays for the services of PIC,
the cost of compensation of officers and employees of the Fund, occupancy and
certain clerical and accounting costs of the Fund. The Fund bears all other
costs and expenses.
PFM has agreed that, in any fiscal year, it will reimburse the Fund for
expenses (including the fees of PMF but excluding interest, taxes, brokerage
commissions, distribution fees, litigation and indemnification expenses and
other extraordinary expenses) in excess of the most restrictive expense
limitation imposed by state securities commissions. The most restrictive expense
limitation is presently believed to be 2 1/2% of the Fund's average daily net
assets up to $30 million. 2% of the next $70 million of such assets and 1 1/2%
of such assets in excess of $100 million. Such expense reimbursement, if any,
will be estimated and accrued daily and payable monthly.
The Fund has entered into a distribution agreement with Prudential
Securities Incorporated (PSI) for distribution of the Fund's shares.
Pursuant to separate Plans of Distribution (the Class A Plan, the Class B
Plan and the Class C Plan, collectively the "Plans") adopted by the Fund under
Rule 12b-1 of the Investment Company Act of 1940, PSI (also the "Distributor")
incurs the expenses of distributing the Fund's Class A, Class B and Class C
shares. These expenses include commissions and account servicing fees paid to,
or on account of financial advisers of PSI and Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, commissions paid to, or on account of,
other broker-dealers or certain financial institutions which have entered into
agreements with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs of
PSI and Prusec associated with the sale of Fund shares, including lease,
utility, communications and sales promotion expenses.
Pursuant to the Class A Plan, the Fund will compensate PSI for its expenses
with respect to Class A shares at an annual rate of up to .30 of 1% of the
average daily net asset value of the Class A shares. PSI has agreed to limit its
distribution-related fees payable under the Class A Plan to .25 of 1% of the
average daily net asset value of the Class A shares for the fiscal year ending
October 31, 1997.
Pursuant to the Class B and Class C Plans, the Fund compensates PSI for its
distribution-related expenses with respect to the Class B and C shares at an
annual rate of 1% of the average daily net assets of the Class B and C shares.
PSI incurs the expense of distributing the Fund's Class Z shares under a
Distribution Agreement with the Fund, none of which is paid for or reimbursed by
the Fund.
B-35
<PAGE>
APPENDIX--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
Value of $1000.00 Invested on 1/1/26 through 6/30/96
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SMALL-SIZED MID-SIZED LARGE SIZE TREASURY
STOCKS STOCKS STOCKS LONG-TERM BONDS BILLS INFLATION
<S> <C> <C> <C> <C> <C> <C>
Index Index Index Index Index Value
Dec-25 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Jan-26 $1,069.86 $1,004.11 $1,000.00 $1,013.76 $1,003.38 $1,000.00
Feb-26 $1,001.49 $951.38 $961.54 $1,020.16 $1,006.07 $996.28
Mar-26 $894.01 $868.88 $906.28 $1,024.37 $1,009.09 $990.69
Apr-26 $910.02 $901.74 $929.21 $1,032.14 $1,012.54 $1,000.00
May-26 $904.00 $911.61 $945.86 $1,033.60 $1,012.67 $994.41
Jun-26 $938.16 $958.70 $989.11 $1,037.54 $1,016.18 $986.96
Jul-26 $948.66 $975.36 $1,036.48 $1,037.99 $1,018.46 $977.65
Aug-26 $972.96 $992.95 $1,062.23 $1,038.00 $1,021.04 $972.07
Sep-26 $972.91 $992.70 $1,088.99 $1,041.90 $1,023.36 $977.65
Oct-26 $950.83 $958.20 $1,058.11 $1,052.50 $1,026.63 $981.38
Nov-26 $970.56 $993.80 $1,094.79 $1,069.34 $1,029.80 $985.10
Dec-26 $1,002.77 $1,021.68 $1,116.24 $1,077.69 $1,032.66 $985.10
Jan-27 $1,032.42 $1,031.79 $1,094.73 $1,085.75 $1,035.21 $977.65
Feb-27 $1,088.92 $1,084.22 $1,153.56 $1,095.28 $1,037.87 $970.21
Mar-27 $1,029.28 $1,069.51 $1,163.57 $1,123.02 $1,040.94 $964.62
Apr-27 $1,088.30 $1,072.34 $1,186.95 $1,122.47 $1,043.59 $964.62
May-27 $1,168.16 $1,145.53 $1,258.99 $1,134.66 $1,046.73 $972.07
Jun-27 $1,132.77 $1,126.85 $1,250.55 $1,126.84 $1,049.43 $981.38
Jul-27 $1,191.20 $1,200.10 $1,334.37 $1,132.44 $1,052.57 $962.76
Aug-27 $1,169.96 $1,207.15 $1,403.08 $1,141.05 $1,055.47 $957.17
Sep-27 $1,175.52 $1,270.63 $1,466.28 $1,143.10 $1,057.69 $962.76
Oct-27 $1,098.05 $1,229.85 $1,392.71 $1,154.37 $1,060.35 $968.34
Nov-27 $1,186.80 $1,329.15 $1,493.11 $1,165.57 $1,062.56 $966.48
Dec-27 $1,224.35 $1,376.35 $1,534.70 $1,173.91 $1,064.93 $964.62
Jan-28 $1,283.32 $1,388.37 $1,528.62 $1,169.68 $1,067.63 $962.76
Feb-28 $1,253.01 $1,348.14 $1,509.48 $1,176.84 $1,071.15 $953.45
Mar-28 $1,319.48 $1,454.99 $1,675.64 $1,182.19 $1,074.30 $953.45
Apr-28 $1,439.54 $1,544.56 $1,733.45 $1,181.76 $1,076.70 $955.31
May-28 $1,502.57 $1,576.15 $1,767.68 $1,172.65 $1,080.18 $960.90
Jun-28 $1,376.02 $1,490.25 $1,699.63 $1,177.50 $1,083.56 $953.45
Jul-28 $1,384.08 $1,502.63 $1,723.54 $1,151.90 $1,087.05 $953.45
Aug-28 $1,445.23 $1,619.08 $1,861.92 $1,160.71 $1,090.55 $955.31
Sep-28 $1,573.85 $1,706.73 $1,910.10 $1,156.00 $1,093.47 $962.76
Oct-28 $1,617.34 $1,716.54 $1,942.28 $1,174.22 $1,097.93 $960.90
Nov-28 $1,802.87 $1,917.92 $2,193.12 $1,174.61 $1,102.16 $959.03
Dec-28 $1,710.34 $1,940.60 $2,203.96 $1,175.13 $1,102.82 $955.31
Jan-29 $1,716.28 $2,007.86 $2,332.49 $1,164.56 $1,106.61 $953.45
Feb-29 $1,711.77 $2,020.81 $2,327.95 $1,146.29 $1,110.57 $951.58
Mar-29 $1,677.49 $1,952.04 $2,325.23 $1,129.82 $1,114.38 $947.86
Apr-29 $1,728.82 $1,972.60 $2,366.21 $1,160.90 $1,118.35 $944.14
May-29 $1,497.77 $1,816.92 $2,280.47 $1,142.13 $1,123.26 $949.72
Jun-29 $1,577.63 $1,981.21 $2,540.38 $1,154.68 $1,129.09 $953.45
Jul-29 $1,595.54 $2,028.63 $2,659.95 $1,154.65 $1,132.87 $962.76
Aug-29 $1,569.44 $2,110.64 $2,933.50 $1,150.71 $1,137.44 $966.48
Sep-29 $1,424.75 $2,047.13 $2,793.81 $1,153.87 $1,141.44 $964.62
Oct-29 $1,030.36 $1,620.02 $2,242.64 $1,197.95 $1,146.67 $964.62
Nov-29 $875.78 $1,427.38 $1,963.12 $1,226.27 $1,150.97 $962.76
Dec-29 $831.92 $1,413.97 $2,018.49 $1,215.33 $1,155.18 $957.17
Jan-30 $939.50 $1,507.32 $2,147.41 $1,208.42 $1,156.79 $953.45
Feb-30 $999.90 $1,537.67 $2,203.00 $1,223.99 $1,160.22 $949.72
Mar-30 $1,100.57 $1,676.08 $2,381.86 $1,234.19 $1,164.25 $944.14
Apr-30 $1,023.75 $1,605.29 $2,362.91 $1,232.23 $1,166.70 $949.72
May-30 $968.22 $1,552.53 $2,340.13 $1,249.42 $1,169.71 $944.14
Jun-30 $758.30 $1,283.05 $1,959.83 $1,255.77 $1,172.86 $938.55
Jul-30 $781.15 $1,335.97 $2,035.50 $1,260.09 $1,175.19 $925.52
Aug-30 $768.15 $1,325.32 $2,064.29 $1,261.74 $1,176.23 $919.93
Sep-30 $656.08 $1,139.77 $1,799.61 $1,271.03 $1,178.81 $925.52
Oct-30 $584.13 $1,042.35 $1,645.69 $1,275.53 $1,179.83 $919.93
Nov-30 $582.51 $1,024.30 $1,631.12 $1,280.93 $1,181.38 $912.48
Dec-30 $514.57 $922.48 $1,515.95 $1,271.95 $1,183.03 $899.44
Jan-31 $622.80 $1,001.04 $1,592.04 $1,256.51 $1,184.74 $886.41
Feb-31 $782.61 $1,123.38 $1,782.02 $1,267.22 $1,185.23 $873.37
Mar-31 $727.22 $1,045.32 $1,661.76 $1,280.45 $1,186.76 $867.79
Apr-31 $569.88 $906.02 $1,506.44 $1,291.42 $1,187.66 $862.20
May-31 $491.31 $770.91 $1,313.76 $1,310.16 $1,188.70 $852.89
Jun-31 $580.70 $898.07 $1,500.43 $1,310.66 $1,189.60 $843.58
Jul-31 $548.34 $839.20 $1,392.18 $1,305.11 $1,190.30 $841.72
Aug-31 $506.52 $836.83 $1,417.53 $1,306.73 $1,190.71 $839.85
Sep-31 $342.10 $577.49 $996.15 $1,270.05 $1,191.02 $836.13
Oct-31 $368.42 $636.03 $1,085.41 $1,228.13 $1,192.24 $830.54
Nov-31 $331.27 $579.44 $998.82 $1,231.47 $1,194.23 $821.23
Dec-31 $258.55 $494.68 $858.99 $1,204.42 $1,195.72 $813.78
Jan-32 $284.90 $509.01 $835.71 $1,208.49 $1,198.49 $797.02
Feb-32 $293.18 $516.03 $883.38 $1,258.44 $1,201.24 $785.85
Mar-32 $254.74 $457.40 $781.08 $1,256.13 $1,203.20 $782.12
Apr-32 $198.20 $373.85 $625.08 $1,331.97 $1,204.58 $776.54
May-32 $174.55 $276.12 $487.84 $1,306.93 $1,205.31 $765.36
Jun-32 $175.12 $291.66 $486.75 $1,315.43 $1,205.58 $759.78
Jul-32 $236.81 $408.13 $672.44 $1,378.73 $1,205.88 $759.78
Aug-32 $410.77 $622.27 $932.60 $1,379.11 $1,206.28 $750.47
Sep-32 $356.55 $585.06 $900.36 $1,386.98 $1,206.65 $746.74
Oct-32 $293.26 $486.85 $778.90 $1,384.62 $1,206.87 $741.16
Nov-32 $257.27 $458.47 $746.45 $1,389.07 $1,207.09 $737.43
Dec-32 $244.62 $462.38 $788.61 $1,407.27 $1,207.22 $729.98
Jan-33 $242.60 $474.99 $795.48 $1,428.15 $1,207.35 $718.81
Feb-33 $211.60 $412.75 $654.49 $1,391.24 $1,207.03 $707.64
Mar-33 $235.25 $435.84 $677.62 $1,404.72 $1,207.54 $702.05
Apr-33 $353.76 $672.24 $966.05 $1,400.21 $1,208.72 $700.19
May-33 $578.02 $911.85 $1,128.60 $1,442.58 $1,209.24 $702.05
Jun-33 $729.27 $1,055.34 $1,279.63 $1,449.76 $1,209.53 $709.50
Jul-33 $689.13 $937.86 $1,169.38 $1,447.31 $1,209.76 $729.98
Aug-33 $752.83 $1,085.67 $1,310.41 $1,453.70 $1,210.06 $737.43
Sep-33 $632.78 $945.40 $1,163.89 $1,457.05 $1,210.25 $737.43
Oct-33 $554.57 $845.33 $1,064.43 $1,443.79 $1,210.35 $737.43
Nov-33 $590.84 $914.73 $1,184.42 $1,422.24 $1,210.57 $737.43
Dec-33 $594.10 $943.96 $1,214.39 $1,406.22 $1,210.81 $733.71
Jan-34 $825.25 $1,141.21 $1,344.24 $1,442.39 $1,211.38 $737.43
Feb-34 $838.95 $1,125.43 $1,300.92 $1,454.10 $1,211.68 $743.02
Mar-34 $837.96 $1,139.23 $1,300.92 $1,482.74 $1,211.94 $743.02
Apr-34 $858.04 $1,120.16 $1,268.24 $1,501.36 $1,212.01 $741.16
May-34 $748.61 $1,019.94 $1,174.88 $1,521.05 $1,212.09 $743.02
Jun-34 $746.79 $1,047.37 $1,201.78 $1,531.26 $1,212.17 $744.88
Jul-34 $578.09 $880.11 $1,065.80 $1,537.38 $1,212.25 $744.88
Aug-34 $667.46 $947.33 $1,130.88 $1,519.19 $1,212.33 $746.74
Sep-34 $656.33 $943.77 $1,127.17 $1,497.04 $1,212.40 $757.92
Oct-34 $662.68 $927.71 $1,094.96 $1,524.34 $1,212.54 $752.33
Nov-34 $725.51 $1,035.54 $1,198.12 $1,530.01 $1,212.64 $750.47
Dec-34 $738.00 $1,051.25 $1,196.87 $1,547.21 $1,212.78 $748.61
Jan-35 $713.80 $999.67 $1,147.73 $1,575.33 $1,212.94 $759.78
Feb-35 $671.53 $968.33 $1,108.63 $1,589.78 $1,213.15 $765.37
Mar-35 $591.72 $916.92 $1,076.92 $1,596.38 $1,213.30 $763.50
Apr-35 $638.53 $988.91 $1,182.45 $1,608.94 $1,213.46 $770.95
May-35 $636.98 $1,011.22 $1,230.87 $1,599.84 $1,213.61 $767.23
Jun-35 $656.40 $1,078.84 $1,316.95 $1,614.56 $1,213.76 $765.37
Jul-35 $712.53 $1,163.72 $1,428.95 $1,621.95 $1,213.92 $761.64
Aug-35 $751.33 $1,197.17 $1,468.93 $1,600.33 $1,214.08 $761.64
Sep-35 $778.12 $1,227.20 $1,506.56 $1,601.71 $1,214.23 $765.37
Oct-35 $855.43 $1,303.50 $1,623.55 $1,611.45 $1,214.38 $765.37
Nov-35 $976.21 $1,383.13 $1,700.43 $1,613.00 $1,214.67 $769.09
Dec-35 $1,034.63 $1,488.92 $1,767.40 $1,624.33 $1,214.83 $770.95
Jan-36 $1,345.97 $1,601.93 $1,885.84 $1,633.30 $1,214.99 $770.95
Feb-36 $1,427.01 $1,649.04 $1,928.01 $1,646.55 $1,215.13 $767.23
Mar-36 $1,436.40 $1,655.55 $1,979.69 $1,664.06 $1,215.34 $763.50
Apr-36 $1,178.63 $1,493.48 $1,831.08 $1,669.93 $1,215.54 $763.50
May-36 $1,210.71 $1,561.43 $1,930.81 $1,676.69 $1,215.74 $763.50
Jun-36 $1,182.71 $1,556.60 $1,995.17 $1,680.26 $1,216.11 $770.95
Jul-36 $1,285.91 $1,691.43 $2,134.99 $1,690.34 $1,216.27 $774.68
Aug-36 $1,312.97 $1,735.39 $2,167.32 $1,709.09 $1,216.48 $780.26
Sep-36 $1,384.08 $1,775.44 $2,174.10 $1,703.77 $1,216.61 $782.13
Oct-36 $1,472.02 $1,877.39 $2,342.49 $1,704.75 $1,216.85 $780.26
Nov-36 $1,678.15 $1,991.19 $2,373.79 $1,739.74 $1,216.95 $780.26
Dec-36 $1,705.07 $2,031.04 $2,366.92 $1,746.40 $1,216.98 $780.26
Jan-37 $1,921.01 $2,131.18 $2,459.23 $1,744.15 $1,217.12 $785.85
Feb-37 $2,047.32 $2,189.11 $2,506.12 $1,759.21 $1,217.33 $787.71
Mar-37 $2,071.81 $2,197.54 $2,486.73 $1,686.82 $1,217.50 $793.30
Apr-37 $1,723.91 $2,007.84 $2,285.52 $1,693.38 $1,217.92 $797.02
May-37 $1,653.55 $1,967.76 $2,279.95 $1,702.30 $1,218.69 $800.75
Jun-37 $1,457.96 $1,853.17 $2,164.97 $1,699.29 $1,219.09 $802.61
Jul-37 $1,638.04 $2,016.16 $2,391.31 $1,722.77 $1,219.48 $806.33
Aug-37 $1,517.45 $1,918.33 $2,275.83 $1,704.81 $1,219.78 $808.20
Sep-37 $1,132.24 $1,575.54 $1,956.59 $1,712.45 $1,220.23 $815.65
Oct-37 $1,008.49 $1,417.30 $1,764.63 $1,719.70 $1,220.43 $811.92
Nov-37 $861.98 $1,271.11 $1,611.86 $1,736.14 $1,220.68 $806.33
Dec-37 $716.00 $1,176.66 $1,537.87 $1,750.45 $1,220.73 $804.47
Jan-38 $754.25 $1,199.89 $1,561.19 $1,760.50 $1,220.77 $793.30
Feb-38 $780.10 $1,275.59 $1,666.35 $1,769.61 $1,220.83 $785.85
Mar-38 $499.26 $926.87 $1,251.96 $1,763.13 $1,220.75 $785.85
Apr-38 $637.87 $1,102.88 $1,433.13 $1,800.11 $1,220.90 $789.57
May-38 $583.68 $1,030.97 $1,385.85 $1,808.08 $1,220.92 $785.85
Jun-38 $787.83 $1,324.78 $1,732.69 $1,808.89 $1,220.93 $785.85
Jul-38 $905.93 $1,478.37 $1,861.59 $1,816.71 $1,220.87 $787.71
Aug-38 $815.22 $1,411.60 $1,819.55 $1,816.71 $1,220.92 $785.85
Sep-38 $802.41 $1,395.86 $1,849.73 $1,820.80 $1,221.14 $785.85
Oct-38 $973.76 $1,585.76 $1,993.29 $1,836.60 $1,221.27 $782.13
Nov-38 $906.72 $1,548.89 $1,938.81 $1,832.58 $1,220.51 $780.26
Dec-38 $950.83 $1,620.68 $2,016.48 $1,847.29 $1,220.53 $782.13
Jan-39 $870.16 $1,492.03 $1,880.63 $1,858.17 $1,220.47 $778.40
Feb-39 $879.43 $1,563.57 $1,954.01 $1,873.01 $1,220.58 $774.68
Mar-39 $662.57 $1,298.19 $1,692.45 $1,896.44 $1,220.46 $772.82
Apr-39 $671.95 $1,298.44 $1,687.83 $1,918.77 $1,220.42 $770.95
May-39 $745.03 $1,417.67 $1,811.48 $1,951.49 $1,220.49 $770.95
Jun-39 $667.38 $1,316.06 $1,700.61 $1,946.22 $1,220.64 $770.95
Jul-39 $836.57 $1,494.57 $1,888.52 $1,968.27 $1,220.65 $770.95
Aug-39 $703.56 $1,335.06 $1,766.17 $1,928.77 $1,220.59 $770.95
Sep-39 $1,065.52 $1,655.55 $2,061.59 $1,823.69 $1,220.71 $785.85
Oct-39 $1,023.24 $1,663.91 $2,036.25 $1,898.42 $1,220.73 $782.13
Nov-39 $915.48 $1,552.63 $1,955.31 $1,929.12 $1,220.76 $782.13
Dec-39 $954.13 $1,606.86 $2,008.20 $1,957.02 $1,220.78 $778.40
Jan-40 $955.02 $1,572.21 $1,940.67 $1,953.71 $1,220.81 $776.54
Feb-40 $1,033.41 $1,609.62 $1,966.44 $1,958.96 $1,220.83 $782.13
Mar-40 $1,098.70 $1,652.84 $1,990.75 $1,993.58 $1,220.83 $780.26
Apr-40 $1,170.59 $1,668.63 $1,985.88 $1,986.60 $1,220.84 $780.26
May-40 $740.55 $1,224.37 $1,531.36 $1,927.18 $1,220.65 $782.13
Jun-40 $818.35 $1,310.25 $1,655.25 $1,976.91 $1,220.70 $783.99
Jul-40 $837.28 $1,367.01 $1,711.65 $1,987.17 $1,220.84 $782.13
Aug-40 $858.63 $1,397.02 $1,771.53 $1,992.73 $1,220.77 $780.26
Sep-40 $876.89 $1,439.34 $1,793.34 $2,014.71 $1,220.79 $782.13
Oct-40 $924.65 $1,533.39 $1,869.04 $2,020.99 $1,220.81 $782.13
Nov-40 $947.28 $1,520.61 $1,810.00 $2,062.35 $1,220.83 $782.13
Dec-40 $904.94 $1,514.61 $1,811.71 $2,076.14 $1,220.84 $785.85
Jan-41 $907.19 $1,447.98 $1,727.80 $2,034.49 $1,220.76 $785.85
Feb-41 $881.02 $1,425.43 $1,717.51 $2,038.60 $1,220.67 $785.85
Mar-41 $909.16 $1,434.28 $1,729.63 $2,058.13 $1,220.81 $789.58
Apr-41 $848.29 $1,350.23 $1,623.69 $2,084.74 $1,220.72 $797.02
May-41 $852.07 $1,373.34 $1,653.34 $2,090.45 $1,220.78 $802.61
Jun-41 $916.24 $1,455.31 $1,748.83 $2,104.20 $1,220.83 $817.51
Jul-41 $1,114.63 $1,597.06 $1,850.03 $2,108.73 $1,221.18 $821.23
Aug-41 $1,107.91 $1,599.49 $1,851.81 $2,112.53 $1,221.26 $828.68
Sep-41 $1,055.92 $1,582.88 $1,839.23 $2,110.08 $1,221.37 $843.58
Oct-41 $984.96 $1,492.20 $1,718.42 $2,139.64 $1,221.42 $852.89
Nov-41 $936.23 $1,466.01 $1,669.58 $2,133.35 $1,221.48 $860.34
Dec-41 $823.50 $1,386.79 $1,601.69 $2,095.50 $1,221.57 $862.20
Jan-42 $979.47 $1,442.65 $1,627.50 $2,110.03 $1,221.79 $873.38
Feb-42 $972.34 $1,419.37 $1,601.63 $2,112.43 $1,221.92 $880.83
Mar-42 $903.37 $1,350.22 $1,497.22 $2,131.79 $1,222.06 $892.00
Apr-42 $871.51 $1,277.73 $1,437.41 $2,125.56 $1,222.14 $897.58
May-42 $868.75 $1,322.89 $1,551.87 $2,141.55 $1,222.45 $906.90
Jun-42 $897.92 $1,350.12 $1,586.15 $2,142.18 $1,222.76 $908.76
Jul-42 $964.05 $1,409.67 $1,639.66 $2,145.95 $1,223.06 $912.48
Aug-42 $995.40 $1,443.18 $1,666.47 $2,154.01 $1,223.42 $918.07
Sep-42 $1,086.22 $1,486.91 $1,714.80 $2,154.71 $1,223.76 $919.93
Oct-42 $1,204.28 $1,614.53 $1,831.06 $2,159.94 $1,224.15 $929.24
Nov-42 $1,142.78 $1,590.13 $1,827.17 $2,152.38 $1,224.50 $934.83
Dec-42 $1,190.01 $1,667.32 $1,927.48 $2,162.94 $1,224.85 $942.28
Jan-43 $1,443.72 $1,822.18 $2,069.53 $2,170.02 $1,225.21 $942.28
Feb-43 $1,722.51 $1,971.77 $2,190.10 $2,168.83 $1,225.53 $944.14
Mar-43 $1,971.34 $2,161.08 $2,309.56 $2,170.84 $1,225.92 $959.03
Apr-43 $2,155.27 $2,203.45 $2,317.54 $2,181.30 $1,226.28 $970.21
May-43 $2,404.41 $2,339.50 $2,445.51 $2,192.29 $1,226.58 $977.66
Jun-43 $2,384.44 $2,373.03 $2,500.04 $2,196.31 $1,226.96 $975.79
Jul-43 $2,126.21 $2,224.56 $2,368.46 $2,196.14 $1,227.31 $968.35
Aug-43 $2,125.68 $2,257.23 $2,409.01 $2,200.68 $1,227.67 $964.62
Sep-43 $2,216.62 $2,320.33 $2,472.30 $2,203.08 $1,228.02 $968.35
Oct-43 $2,243.89 $2,302.65 $2,445.69 $2,204.17 $1,228.37 $972.07
Nov-43 $1,994.21 $2,123.66 $2,285.66 $2,204.06 $1,228.73 $970.21
Dec-43 $2,241.67 $2,312.41 $2,426.69 $2,208.02 $1,229.10 $972.07
Jan-44 $2,385.26 $2,377.54 $2,468.28 $2,212.67 $1,229.46 $970.21
Feb-44 $2,455.60 $2,402.51 $2,478.70 $2,219.75 $1,229.80 $968.34
Mar-44 $2,639.58 $2,478.52 $2,526.93 $2,224.38 $1,230.11 $968.34
Apr-44 $2,499.03 $2,404.83 $2,501.70 $2,227.35 $1,230.45 $973.93
May-44 $2,683.84 $2,549.56 $2,628.16 $2,233.54 $1,230.76 $977.66
Jun-44 $3,055.40 $2,752.95 $2,770.74 $2,235.29 $1,231.11 $979.52
Jul-44 $2,964.18 $2,715.81 $2,717.38 $2,243.40 $1,231.47 $985.10
Aug-44 $3,058.58 $2,780.75 $2,760.14 $2,249.44 $1,231.84 $988.83
Sep-44 $3,052.52 $2,778.43 $2,757.98 $2,252.60 $1,232.13 $988.83
Oct-44 $3,019.54 $2,773.27 $2,764.46 $2,255.30 $1,232.51 $988.83
Nov-44 $3,170.31 $2,833.12 $2,801.23 $2,260.63 $1,232.86 $988.83
Dec-44 $3,445.94 $3,000.86 $2,906.03 $2,270.17 $1,233.16 $992.55
Jan-45 $3,612.14 $3,097.63 $2,951.98 $2,298.91 $1,233.48 $992.55
Feb-45 $3,976.63 $3,344.41 $3,153.60 $2,316.53 $1,233.75 $990.69
Mar-45 $3,634.21 $3,180.96 $3,014.67 $2,321.29 $1,234.06 $990.69
Apr-45 $4,054.78 $3,469.09 $3,286.52 $2,358.49 $1,234.41 $992.55
May-45 $4,257.44 $3,546.04 $3,350.74 $2,371.76 $1,234.78 $1,000.00
Jun-45 $4,621.49 $3,632.16 $3,348.51 $2,411.79 $1,235.08 $1,009.31
Jul-45 $4,364.40 $3,513.68 $3,288.08 $2,391.07 $1,235.45 $1,011.18
Aug-45 $4,607.31 $3,745.37 $3,498.91 $2,397.26 $1,235.82 $1,011.18
Sep-45 $4,920.18 $3,986.30 $3,652.31 $2,410.26 $1,236.17 $1,007.45
Oct-45 $5,264.92 $4,198.49 $3,769.84 $2,435.40 $1,236.55 $1,007.45
Nov-45 $5,882.19 $4,627.31 $3,919.27 $2,465.95 $1,236.85 $1,011.18
Dec-45 $5,982.52 $4,704.74 $3,964.87 $2,513.86 $1,237.22 $1,014.90
Jan-46 $6,916.84 $5,047.31 $4,248.08 $2,520.20 $1,237.60 $1,014.90
Feb-46 $6,476.45 $4,700.01 $3,975.85 $2,528.22 $1,237.93 $1,011.18
Mar-46 $6,653.45 $5,042.66 $4,166.82 $2,530.79 $1,238.29 $1,018.62
Apr-46 $7,116.59 $5,262.53 $4,330.45 $2,496.54 $1,238.66 $1,024.21
May-46 $7,537.28 $5,558.22 $4,455.11 $2,493.47 $1,239.03 $1,029.80
Jun-46 $7,188.73 $5,254.09 $4,290.19 $2,510.94 $1,239.36 $1,040.97
Jul-46 $6,808.07 $5,041.08 $4,187.76 $2,500.92 $1,239.76 $1,102.42
Aug-46 $6,230.35 $4,678.93 $3,905.62 $2,473.03 $1,240.12 $1,126.63
Sep-46 $5,231.83 $4,077.61 $3,516.23 $2,470.71 $1,240.49 $1,139.67
Oct-46 $5,170.06 $4,023.43 $3,495.08 $2,488.94 $1,240.86 $1,162.01
Nov-46 $5,097.11 $4,026.05 $3,485.66 $2,475.47 $1,241.22 $1,189.95
Dec-46 $5,287.04 $4,246.17 $3,644.85 $2,511.30 $1,241.59 $1,199.26
Jan-47 $5,509.44 $4,311.84 $3,737.76 $2,509.75 $1,241.96 $1,199.26
Feb-47 $5,486.94 $4,280.18 $3,709.12 $2,515.02 $1,242.30 $1,197.39
Mar-47 $5,302.59 $4,190.09 $3,653.83 $2,520.00 $1,242.67 $1,223.46
Apr-47 $4,755.84 $3,878.37 $3,521.36 $2,510.75 $1,243.03 $1,223.46
May-47 $4,502.03 $3,758.94 $3,526.19 $2,519.14 $1,243.38 $1,219.74
Jun-47 $4,750.37 $3,993.12 $3,721.41 $2,521.71 $1,243.76 $1,229.05
Jul-47 $5,125.25 $4,235.82 $3,863.32 $2,537.47 $1,244.13 $1,240.23
Aug-47 $5,106.30 $4,177.01 $3,784.87 $2,558.11 $1,244.47 $1,253.26
Sep-47 $5,165.08 $4,196.73 $3,742.87 $2,546.98 $1,245.28 $1,283.06
Oct-47 $5,310.95 $4,302.58 $3,832.05 $2,537.45 $1,246.08 $1,283.06
Nov-47 $5,150.28 $4,185.73 $3,764.99 $2,493.28 $1,246.86 $1,290.51
Dec-47 $5,335.41 $4,300.31 $3,852.90 $2,445.43 $1,247.84 $1,307.27
Jan-48 $5,253.50 $4,206.60 $3,706.85 $2,450.38 $1,248.75 $1,322.16
Feb-48 $4,842.33 $3,984.74 $3,563.01 $2,461.76 $1,249.65 $1,310.99
Mar-48 $5,319.64 $4,365.28 $3,845.51 $2,470.18 $1,250.76 $1,307.27
Apr-48 $5,515.15 $4,568.31 $3,957.72 $2,481.22 $1,251.78 $1,325.89
May-48 $6,099.32 $4,928.66 $4,305.42 $2,516.26 $1,252.73 $1,335.20
Jun-48 $6,128.48 $4,852.33 $4,328.64 $2,495.12 $1,253.87 $1,344.51
Jul-48 $5,774.14 $4,614.14 $4,108.84 $2,489.83 $1,254.89 $1,361.27
Aug-48 $5,777.66 $4,637.96 $4,173.65 $2,490.18 $1,255.97 $1,366.86
Sep-48 $5,473.89 $4,436.77 $4,058.66 $2,493.66 $1,256.42 $1,366.86
Oct-48 $5,828.11 $4,680.25 $4,346.88 $2,495.51 $1,256.92 $1,361.27
Nov-48 $5,177.41 $4,197.64 $3,929.01 $2,514.42 $1,257.41 $1,351.96
Dec-48 $5,222.73 $4,303.69 $4,064.86 $2,528.54 $1,257.97 $1,342.65
Jan-49 $5,317.90 $4,363.02 $4,080.90 $2,549.21 $1,259.17 $1,340.78
Feb-49 $5,062.01 $4,234.22 $3,960.25 $2,561.66 $1,260.28 $1,325.89
Mar-49 $5,380.23 $4,459.50 $4,090.27 $2,580.74 $1,261.51 $1,329.61
Apr-49 $5,199.36 $4,316.72 $4,016.94 $2,583.71 $1,262.67 $1,331.47
May-49 $4,906.05 $4,195.58 $3,913.38 $2,588.73 $1,263.95 $1,329.61
Jun-49 $4,858.85 $4,172.30 $3,918.90 $2,631.98 $1,265.16 $1,331.47
Jul-49 $5,184.79 $4,435.85 $4,173.51 $2,640.78 $1,266.26 $1,322.16
Aug-49 $5,317.75 $4,534.47 $4,265.08 $2,670.12 $1,267.41 $1,325.89
Sep-49 $5,577.93 $4,736.17 $4,377.18 $2,667.08 $1,268.50 $1,331.47
Oct-49 $5,841.35 $4,871.87 $4,526.08 $2,672.09 $1,269.64 $1,324.03
Nov-49 $5,850.62 $4,966.59 $4,605.09 $2,677.71 $1,270.70 $1,325.89
Dec-49 $6,254.13 $5,281.43 $4,828.75 $2,691.60 $1,271.84 $1,318.44
Jan-50 $6,561.56 $5,432.96 $4,923.82 $2,675.13 $1,273.02 $1,312.85
Feb-50 $6,706.48 $5,522.59 $5,022.01 $2,680.79 $1,274.10 $1,309.13
Mar-50 $6,681.57 $5,523.15 $5,057.01 $2,682.99 $1,275.32 $1,314.71
Apr-50 $6,956.41 $5,747.29 $5,302.69 $2,691.04 $1,276.41 $1,316.58
May-50 $7,133.70 $5,902.94 $5,572.67 $2,699.95 $1,277.73 $1,322.16
Jun-50 $6,579.50 $5,475.03 $5,267.03 $2,693.20 $1,278.97 $1,329.61
Jul-50 $6,968.59 $5,665.12 $5,329.55 $2,708.14 $1,280.23 $1,342.65
Aug-50 $7,337.80 $5,913.12 $5,565.56 $2,711.92 $1,281.47 $1,353.82
Sep-50 $7,720.24 $6,278.31 $5,894.90 $2,692.29 $1,282.77 $1,363.13
Oct-50 $7,674.87 $6,203.99 $5,949.46 $2,679.44 $1,284.26 $1,370.58
Nov-50 $7,922.34 $6,425.10 $6,049.99 $2,688.83 $1,285.62 $1,376.17
Dec-50 $8,677.42 $6,879.51 $6,360.08 $2,693.19 $1,287.04 $1,394.79
Jan-51 $9,398.03 $7,391.97 $6,765.18 $2,708.76 $1,288.66 $1,417.13
Feb-51 $9,455.16 $7,472.68 $6,871.38 $2,688.75 $1,290.01 $1,433.89
Mar-51 $9,003.91 $7,227.83 $6,764.21 $2,646.45 $1,291.39 $1,439.48
Apr-51 $9,334.12 $7,553.25 $7,108.74 $2,629.91 $1,293.05 $1,441.34
May-51 $9,025.61 $7,398.51 $6,896.40 $2,611.74 $1,294.66 $1,446.93
Jun-51 $8,548.47 $7,070.06 $6,739.37 $2,595.65 $1,296.16 $1,445.07
Jul-51 $8,867.34 $7,574.71 $7,218.46 $2,631.56 $1,297.91 $1,446.93
Aug-51 $9,403.43 $7,869.24 $7,563.27 $2,657.50 $1,299.64 $1,446.93
Sep-51 $9,605.66 $8,050.96 $7,573.02 $2,636.37 $1,301.22 $1,456.24
Oct-51 $9,392.15 $7,863.88 $7,494.88 $2,639.06 $1,303.25 $1,463.69
Nov-51 $9,314.04 $8,018.98 $7,566.75 $2,603.17 $1,304.65 $1,471.14
Dec-51 $9,354.57 $8,166.06 $7,887.55 $2,587.32 $1,306.26 $1,476.72
Jan-52 $9,533.32 $8,293.08 $8,030.23 $2,594.61 $1,308.28 $1,476.72
Feb-52 $9,247.79 $8,140.34 $7,804.03 $2,598.23 $1,309.78 $1,467.41
Mar-52 $9,410.00 $8,437.24 $8,196.58 $2,626.99 $1,311.19 $1,467.41
Apr-52 $8,921.53 $8,032.54 $7,866.97 $2,671.84 $1,312.72 $1,473.00
May-52 $8,949.87 $8,253.96 $8,136.85 $2,662.89 $1,314.44 $1,474.86
Jun-52 $9,193.01 $8,535.68 $8,535.84 $2,663.69 $1,316.39 $1,478.59
Jul-52 $9,296.25 $8,657.79 $8,703.41 $2,658.47 $1,318.38 $1,489.76
Aug-52 $9,291.10 $8,635.01 $8,641.73 $2,639.88 $1,320.31 $1,491.62
Sep-52 $9,141.68 $8,480.39 $8,489.82 $2,605.57 $1,322.47 $1,489.76
Oct-52 $9,047.49 $8,412.38 $8,507.11 $2,644.06 $1,324.31 $1,491.62
Nov-52 $9,485.88 $8,879.80 $8,992.83 $2,639.99 $1,325.70 $1,491.62
Dec-52 $9,637.73 $9,128.97 $9,336.29 $2,617.33 $1,327.89 $1,489.76
Jan-53 $10,031.94 $9,251.10 $9,290.61 $2,620.42 $1,330.04 $1,486.04
Feb-53 $10,301.71 $9,314.08 $9,192.00 $2,597.67 $1,331.90 $1,478.59
Mar-53 $10,232.76 $9,222.82 $8,996.79 $2,574.78 $1,334.35 $1,482.31
Apr-53 $9,938.64 $8,993.10 $8,783.34 $2,547.72 $1,336.52 $1,484.17
May-53 $10,079.26 $9,025.92 $8,851.13 $2,510.14 $1,338.82 $1,487.90
Jun-53 $9,589.21 $8,783.14 $8,732.10 $2,566.02 $1,341.28 $1,493.48
Jul-53 $9,734.91 $8,926.88 $8,970.85 $2,576.11 $1,343.23 $1,497.21
Aug-53 $9,123.38 $8,492.99 $8,521.40 $2,574.18 $1,345.47 $1,500.93
Sep-53 $8,884.04 $8,454.98 $8,550.64 $2,651.23 $1,347.65 $1,502.80
Oct-53 $9,143.04 $8,818.08 $9,012.04 $2,670.95 $1,349.34 $1,506.52
Nov-53 $9,258.36 $9,055.16 $9,195.66 $2,657.75 $1,350.38 $1,500.93
Dec-53 $9,012.51 $9,031.92 $9,243.94 $2,712.53 $1,352.10 $1,499.07
Jan-54 $9,694.17 $9,614.79 $9,739.48 $2,736.75 $1,353.58 $1,502.80
Feb-54 $9,785.62 $9,808.39 $9,847.78 $2,802.33 $1,354.54 $1,500.93
Mar-54 $9,964.71 $10,152.14 $10,167.88 $2,818.67 $1,355.59 $1,499.07
Apr-54 $10,104.46 $10,387.65 $10,692.50 $2,847.92 $1,356.80 $1,495.35
May-54 $10,560.58 $10,843.02 $11,138.97 $2,823.14 $1,357.49 $1,500.93
Jun-54 $10,651.22 $11,023.48 $11,173.31 $2,869.05 $1,358.29 $1,502.80
Jul-54 $11,511.62 $11,728.34 $11,831.24 $2,907.62 $1,358.98 $1,502.80
Aug-54 $11,528.22 $11,545.73 $11,505.57 $2,897.16 $1,359.66 $1,500.93
Sep-54 $12,000.47 $12,081.24 $12,485.26 $2,894.35 $1,360.84 $1,497.21
Oct-54 $12,082.27 $12,036.58 $12,276.59 $2,896.16 $1,361.79 $1,493.49
Nov-54 $13,023.69 $13,216.38 $13,392.65 $2,888.95 $1,362.65 $1,495.35
Dec-54 $14,472.54 $14,096.06 $14,108.43 $2,907.48 $1,363.78 $1,491.62
Jan-55 $14,763.65 $14,230.58 $14,386.83 $2,837.38 $1,364.89 $1,491.62
Feb-55 $15,471.44 $14,784.93 $14,528.23 $2,815.17 $1,366.05 $1,491.62
Mar-55 $15,602.39 $14,723.67 $14,484.76 $2,839.75 $1,367.40 $1,491.62
Apr-55 $15,836.67 $15,077.00 $15,058.92 $2,839.99 $1,368.83 $1,491.62
May-55 $15,959.95 $15,192.07 $15,142.22 $2,860.69 $1,370.73 $1,491.62
Jun-55 $16,428.16 $15,765.27 $16,416.40 $2,838.92 $1,372.13 $1,491.62
Jul-55 $16,532.97 $15,811.24 $17,436.68 $2,809.88 $1,373.50 $1,497.21
Aug-55 $16,487.00 $15,967.76 $17,392.60 $2,811.03 $1,375.67 $1,493.48
Sep-55 $16,667.25 $15,726.37 $17,618.16 $2,831.54 $1,377.90 $1,499.07
Oct-55 $16,384.45 $15,424.13 $17,117.89 $2,872.35 $1,380.40 $1,499.07
Nov-55 $17,151.90 $16,408.97 $18,532.93 $2,859.43 $1,382.75 $1,500.93
Dec-55 $17,430.84 $16,747.90 $18,561.43 $2,869.90 $1,385.25 $1,497.21
Jan-56 $17,348.40 $16,232.48 $17,916.59 $2,893.75 $1,388.30 $1,495.35
Feb-56 $17,830.35 $16,832.65 $18,656.63 $2,893.11 $1,390.95 $1,495.35
Mar-56 $18,598.07 $17,749.00 $19,981.61 $2,850.03 $1,393.06 $1,497.21
Apr-56 $18,685.06 $17,812.91 $19,973.36 $2,817.86 $1,395.64 $1,499.07
May-56 $17,941.88 $17,171.26 $18,788.50 $2,881.37 $1,398.85 $1,506.52
Jun-56 $18,041.87 $17,685.33 $19,557.49 $2,889.22 $1,401.62 $1,515.83
Jul-56 $18,552.33 $18,497.56 $20,594.29 $2,828.95 $1,404.65 $1,527.00
Aug-56 $18,303.24 $18,046.94 $19,918.80 $2,776.19 $1,406.98 $1,525.14
Sep-56 $17,826.52 $17,334.29 $19,042.55 $2,789.95 $1,409.57 $1,527.00
Oct-56 $18,012.73 $17,472.01 $19,168.52 $2,774.77 $1,413.06 $1,536.31
Nov-56 $18,108.43 $17,699.20 $19,071.79 $2,758.84 $1,415.95 $1,536.31
Dec-56 $18,177.39 $18,117.87 $19,778.31 $2,709.57 $1,419.31 $1,540.04
Jan-57 $18,606.52 $17,948.81 $18,985.81 $2,803.25 $1,423.10 $1,541.90
Feb-57 $18,234.26 $17,605.52 $18,484.85 $2,810.27 $1,426.50 $1,547.49
Mar-57 $18,539.52 $17,988.55 $18,882.24 $2,803.52 $1,429.79 $1,551.21
Apr-57 $18,999.99 $18,558.99 $19,614.25 $2,741.42 $1,433.39 $1,556.80
May-57 $19,143.25 $19,011.64 $20,471.88 $2,735.17 $1,437.06 $1,560.52
Jun-57 $19,283.36 $18,759.35 $20,480.52 $2,685.83 $1,440.52 $1,569.83
Jul-57 $19,166.90 $18,824.43 $20,748.57 $2,674.85 $1,444.78 $1,577.28
Aug-57 $18,427.37 $17,718.59 $19,700.54 $2,675.32 $1,448.42 $1,579.14
Sep-57 $17,594.67 $16,833.21 $18,515.55 $2,695.66 $1,452.14 $1,581.01
Oct-57 $16,130.60 $15,935.43 $17,956.86 $2,682.13 $1,456.34 $1,581.01
Nov-57 $16,313.52 $16,436.53 $18,372.33 $2,825.04 $1,460.37 $1,586.59
Dec-57 $15,528.92 $15,797.84 $17,645.72 $2,911.66 $1,463.87 $1,586.59
Jan-58 $17,244.89 $17,232.73 $18,431.15 $2,887.09 $1,467.92 $1,595.91
Feb-58 $16,951.71 $17,072.29 $18,170.37 $2,916.09 $1,469.69 $1,597.77
Mar-58 $17,750.17 $17,748.51 $18,766.56 $2,945.87 $1,471.08 $1,608.94
Apr-58 $18,417.61 $18,230.88 $19,399.53 $3,000.77 $1,472.27 $1,612.67
May-58 $19,131.20 $18,883.14 $19,810.40 $3,001.03 $1,473.88 $1,612.67
Jun-58 $19,751.58 $19,466.06 $20,363.05 $2,953.10 $1,474.32 $1,614.53
Jul-58 $20,722.39 $20,452.56 $21,276.78 $2,870.98 $1,475.30 $1,616.39
Aug-58 $21,610.12 $21,045.51 $21,650.99 $2,745.94 $1,475.97 $1,614.53
Sep-58 $22,729.50 $22,049.97 $22,734.67 $2,713.82 $1,478.78 $1,614.53
Oct-58 $23,654.71 $22,740.22 $23,347.78 $2,751.40 $1,481.50 $1,614.53
Nov-58 $24,828.29 $23,702.15 $24,011.86 $2,784.52 $1,483.11 $1,616.39
Dec-58 $25,605.12 $24,646.97 $25,297.55 $2,734.23 $1,486.43 $1,614.53
Jan-59 $27,076.41 $25,315.15 $25,430.44 $2,712.28 $1,489.48 $1,616.39
Feb-59 $27,875.19 $26,097.69 $25,554.33 $2,744.12 $1,492.28 $1,614.53
Mar-59 $27,950.57 $26,298.43 $25,605.06 $2,748.69 $1,495.53 $1,614.53
Apr-59 $28,276.78 $27,158.99 $26,635.00 $2,716.58 $1,498.51 $1,616.39
May-59 $28,315.32 $27,464.48 $27,273.23 $2,715.09 $1,501.79 $1,618.25
Jun-59 $28,196.14 $27,631.22 $27,212.81 $2,717.93 $1,505.47 $1,625.70
Jul-59 $29,118.49 $28,420.42 $28,199.50 $2,734.22 $1,509.27 $1,629.42
Aug-59 $28,862.77 $27,987.43 $27,910.57 $2,722.96 $1,512.08 $1,627.56
Sep-59 $27,618.88 $26,650.95 $26,674.27 $2,707.57 $1,516.74 $1,633.15
Oct-59 $28,245.19 $27,355.76 $27,016.60 $2,748.29 $1,521.31 $1,638.73
Nov-59 $28,873.02 $27,996.95 $27,519.17 $2,715.67 $1,525.20 $1,638.73
Dec-59 $29,803.92 $28,267.43 $28,321.90 $2,672.51 $1,530.31 $1,638.73
Jan-60 $28,890.64 $26,746.13 $26,340.44 $2,702.40 $1,535.39 $1,636.87
Feb-60 $29,034.11 $27,007.66 $26,728.86 $2,757.50 $1,539.78 $1,638.74
Mar-60 $28,119.65 $26,463.78 $26,400.23 $2,835.27 $1,545.12 $1,638.74
Apr-60 $27,594.12 $26,124.25 $25,975.66 $2,787.13 $1,548.13 $1,648.05
May-60 $28,158.42 $26,938.70 $26,821.30 $2,829.42 $1,552.37 $1,648.05
Jun-60 $29,115.98 $27,607.05 $27,388.19 $2,878.25 $1,556.07 $1,651.77
Jul-60 $28,564.61 $27,199.04 $26,748.24 $2,984.04 $1,558.14 $1,651.77
Aug-60 $30,063.51 $28,019.96 $27,596.32 $2,963.96 $1,560.72 $1,651.77
Sep-60 $27,844.01 $26,488.59 $25,968.44 $2,986.26 $1,563.18 $1,653.63
Oct-60 $26,728.13 $25,998.05 $25,949.04 $2,977.87 $1,566.56 $1,661.08
Nov-60 $27,896.26 $27,593.75 $27,154.40 $2,958.21 $1,568.62 $1,662.94
Dec-60 $28,822.97 $28,858.35 $28,454.91 $3,040.75 $1,571.06 $1,662.94
Jan-61 $31,460.21 $31,170.31 $30,291.19 $3,008.21 $1,574.00 $1,662.94
Feb-61 $33,313.91 $32,876.41 $31,257.08 $3,068.39 $1,576.26 $1,662.94
Mar-61 $35,375.95 $34,440.64 $32,099.62 $3,056.89 $1,579.47 $1,662.94
Apr-61 $35,825.15 $34,448.39 $32,262.43 $3,092.08 $1,582.23 $1,662.94
May-61 $37,355.42 $35,742.20 $33,033.05 $3,077.89 $1,585.04 $1,662.94
Jun-61 $35,325.75 $34,344.89 $32,124.84 $3,054.89 $1,588.23 $1,664.81
Jul-61 $35,436.32 $34,885.07 $33,223.15 $3,065.47 $1,591.12 $1,672.25
Aug-61 $35,898.16 $36,051.52 $34,029.35 $3,053.91 $1,593.37 $1,670.39
Sep-61 $34,682.36 $35,143.06 $33,404.46 $3,093.35 $1,596.05 $1,674.12
Oct-61 $35,589.90 $36,202.80 $34,400.65 $3,115.35 $1,599.01 $1,674.12
Nov-61 $37,771.88 $37,603.31 $35,939.70 $3,109.06 $1,601.48 $1,674.12
Dec-61 $38,071.63 $37,242.24 $36,106.00 $3,070.35 $1,604.47 $1,674.12
Jan-62 $38,590.93 $36,434.94 $34,783.87 $3,066.02 $1,608.33 $1,674.12
Feb-62 $39,314.32 $36,985.43 $35,511.48 $3,097.60 $1,611.58 $1,677.84
Mar-62 $39,537.39 $36,644.98 $35,349.05 $3,176.06 $1,614.86 $1,681.57
Apr-62 $36,463.91 $34,305.05 $33,204.21 $3,202.11 $1,618.49 $1,685.29
May-62 $32,785.54 $30,881.79 $30,511.84 $3,216.76 $1,622.38 $1,685.29
Jun-62 $30,212.73 $28,212.06 $28,060.86 $3,192.48 $1,625.55 $1,685.29
Jul-62 $32,517.57 $29,842.49 $29,890.57 $3,157.71 $1,629.88 $1,689.01
Aug-62 $33,457.94 $30,590.13 $30,511.69 $3,216.80 $1,633.70 $1,689.01
Sep-62 $31,253.77 $28,948.54 $29,092.41 $3,236.36 $1,637.07 $1,698.33
Oct-62 $30,087.19 $28,641.60 $29,278.54 $3,263.46 $1,641.25 $1,696.46
Nov-62 $33,841.80 $32,374.78 $32,459.19 $3,270.37 $1,644.53 $1,696.46
Dec-62 $33,540.10 $32,500.33 $32,954.48 $3,281.79 $1,648.33 $1,694.60
Jan-63 $36,579.94 $34,507.58 $34,620.50 $3,281.46 $1,652.46 $1,696.46
Feb-63 $36,705.11 $33,900.56 $33,794.21 $3,283.94 $1,656.21 $1,698.33
Mar-63 $37,251.07 $34,648.33 $35,045.27 $3,286.78 $1,660.00 $1,700.19
Apr-63 $38,412.18 $36,161.39 $36,798.34 $3,282.90 $1,664.21 $1,700.19
May-63 $40,088.18 $37,086.69 $37,510.06 $3,290.30 $1,668.25 $1,700.19
Jun-63 $39,613.50 $36,408.30 $36,805.43 $3,296.66 $1,672.02 $1,707.64
Jul-63 $39,743.63 $35,854.68 $36,725.86 $3,306.87 $1,676.50 $1,715.09
Aug-63 $41,799.21 $37,855.33 $38,691.50 $3,313.97 $1,680.66 $1,715.09
Sep-63 $41,118.30 $37,082.70 $38,317.93 $3,315.43 $1,685.25 $1,715.09
Oct-63 $42,090.09 $37,490.58 $39,616.57 $3,306.87 $1,690.17 $1,716.95
Nov-63 $41,642.25 $37,310.51 $39,434.57 $3,323.67 $1,694.74 $1,718.81
Dec-63 $41,443.95 $37,867.48 $40,468.50 $3,321.61 $1,699.70 $1,722.54
Jan-64 $42,580.55 $38,348.97 $41,612.10 $3,317.09 $1,704.72 $1,724.40
Feb-64 $44,134.02 $39,386.84 $42,222.47 $3,313.47 $1,709.20 $1,722.54
Mar-64 $45,099.18 $40,628.51 $42,917.11 $3,325.70 $1,714.54 $1,724.40
Apr-64 $45,520.14 $40,487.61 $43,237.70 $3,341.24 $1,719.57 $1,726.26
May-64 $46,233.80 $41,130.43 $43,939.67 $3,358.02 $1,723.96 $1,726.26
Jun-64 $46,985.47 $41,895.01 $44,721.49 $3,381.19 $1,729.22 $1,729.99
Jul-64 $48,856.86 $42,858.47 $45,591.95 $3,383.75 $1,734.35 $1,733.71
Aug-64 $48,715.32 $42,740.73 $45,054.78 $3,390.49 $1,739.27 $1,731.85
Sep-64 $50,675.87 $44,257.99 $46,409.22 $3,407.28 $1,744.15 $1,735.57
Oct-64 $51,716.09 $45,139.92 $46,855.77 $3,421.99 $1,749.26 $1,737.44
Nov-64 $51,772.05 $45,238.19 $46,877.84 $3,427.78 $1,754.33 $1,741.16
Dec-64 $51,192.67 $45,060.85 $47,138.81 $3,438.07 $1,759.79 $1,743.02
Jan-65 $53,901.63 $47,461.24 $48,762.93 $3,451.81 $1,764.77 $1,743.02
Feb-65 $56,003.09 $48,870.75 $48,913.31 $3,456.63 $1,770.03 $1,743.02
Mar-65 $57,335.46 $48,899.73 $48,264.33 $3,475.18 $1,776.38 $1,744.89
Apr-65 $60,252.06 $50,534.30 $49,984.04 $3,487.86 $1,781.81 $1,750.47
May-65 $59,781.61 $50,269.96 $49,832.58 $3,494.06 $1,787.35 $1,754.20
Jun-65 $54,397.50 $46,496.99 $47,476.80 $3,510.60 $1,793.67 $1,763.51
Jul-65 $56,837.34 $47,958.95 $48,176.65 $3,518.31 $1,799.23 $1,765.37
Aug-65 $60,219.61 $50,062.14 $49,487.73 $3,513.77 $1,805.17 $1,761.65
Sep-65 $62,310.38 $51,631.49 $51,139.78 $3,501.90 $1,810.81 $1,765.37
Oct-65 $65,875.96 $53,814.37 $52,617.82 $3,511.39 $1,816.51 $1,767.23
Nov-65 $68,319.04 $55,647.99 $52,452.71 $3,489.55 $1,822.87 $1,770.96
Dec-65 $72,567.39 $56,688.71 $53,008.08 $3,462.47 $1,828.90 $1,776.54
Jan-66 $78,050.58 $58,355.59 $53,334.98 $3,426.53 $1,835.83 $1,776.54
Feb-66 $80,479.36 $58,637.39 $52,634.43 $3,340.86 $1,842.21 $1,787.72
Mar-66 $78,934.80 $57,188.63 $51,555.42 $3,439.89 $1,849.30 $1,793.30
Apr-66 $81,644.63 $59,145.23 $52,687.89 $3,418.32 $1,855.62 $1,800.75
May-66 $73,797.11 $55,298.54 $50,095.75 $3,398.02 $1,863.28 $1,802.61
Jun-66 $73,708.56 $55,090.01 $49,362.90 $3,392.68 $1,870.28 $1,808.20
Jul-66 $73,617.01 $54,321.40 $48,768.72 $3,380.16 $1,876.90 $1,813.79
Aug-66 $65,669.10 $49,741.56 $45,233.57 $3,310.46 $1,884.60 $1,823.10
Sep-66 $64,594.88 $49,148.54 $44,993.02 $3,420.45 $1,892.15 $1,826.82
Oct-66 $63,901.91 $50,335.62 $47,214.46 $3,498.48 $1,900.72 $1,834.27
Nov-66 $67,041.28 $52,094.00 $47,661.86 $3,446.53 $1,908.28 $1,834.27
Dec-66 $67,479.13 $53,393.22 $47,673.73 $3,588.91 $1,915.95 $1,836.13
Jan-67 $79,884.02 $59,579.68 $51,477.90 $3,644.23 $1,924.21 $1,836.13
Feb-67 $83,474.81 $60,163.50 $51,846.43 $3,563.77 $1,931.08 $1,837.99
Mar-67 $88,606.34 $63,657.98 $53,967.37 $3,634.32 $1,938.61 $1,841.72
Apr-67 $91,003.40 $66,184.57 $56,324.71 $3,528.49 $1,944.90 $1,845.44
May-67 $90,232.33 $65,230.65 $53,640.62 $3,514.80 $1,951.39 $1,851.03
Jun-67 $99,410.67 $68,071.18 $54,658.29 $3,405.14 $1,956.58 $1,856.61
Jul-67 $108,862.34 $71,990.65 $57,215.09 $3,428.38 $1,962.74 $1,865.93
Aug-67 $109,084.97 $72,150.04 $56,816.53 $3,399.47 $1,968.85 $1,871.51
Sep-67 $115,244.34 $74,213.46 $58,758.12 $3,397.95 $1,975.16 $1,875.24
Oct-67 $111,661.86 $71,356.76 $57,135.93 $3,262.06 $1,982.94 $1,880.82
Nov-67 $112,964.50 $71,876.38 $57,507.08 $3,197.96 $1,989.98 $1,886.41
Dec-67 $123,870.43 $74,622.70 $59,103.82 $3,259.41 $1,996.61 $1,892.00
Jan-68 $125,779.40 $72,803.10 $56,591.91 $3,366.26 $2,004.68 $1,899.44
Feb-68 $116,860.64 $69,288.61 $55,113.34 $3,355.08 $2,012.45 $1,905.03
Mar-68 $115,586.15 $69,409.79 $55,717.76 $3,284.09 $2,020.10 $1,914.34
Apr-68 $132,468.44 $77,068.68 $60,362.95 $3,358.56 $2,028.77 $1,919.93
May-68 $145,697.66 $80,528.83 $61,334.07 $3,372.95 $2,037.82 $1,925.52
Jun-68 $146,136.79 $81,731.45 $61,980.47 $3,450.53 $2,046.48 $1,936.69
Jul-68 $141,088.06 $78,697.82 $60,916.14 $3,550.30 $2,056.24 $1,946.00
Aug-68 $146,266.41 $80,475.53 $61,913.34 $3,549.27 $2,064.92 $1,951.59
Sep-68 $155,033.92 $85,280.72 $64,387.09 $3,512.96 $2,073.71 $1,957.18
Oct-68 $155,505.37 $86,279.44 $64,945.26 $3,466.49 $2,082.76 $1,968.35
Nov-68 $167,387.54 $92,663.60 $68,393.20 $3,373.27 $2,091.61 $1,975.80
Dec-68 $168,428.52 $90,068.47 $65,641.54 $3,250.92 $2,100.55 $1,981.38
Jan-69 $165,633.62 $89,305.77 $65,192.81 $3,184.09 $2,111.61 $1,986.97
Feb-69 $149,238.05 $83,279.95 $62,414.49 $3,197.35 $2,121.35 $1,994.42
Mar-69 $155,141.90 $84,835.12 $64,653.36 $3,200.65 $2,131.19 $2,011.18
Apr-69 $161,264.89 $85,996.26 $66,131.02 $3,337.18 $2,142.55 $2,024.22
May-69 $164,062.67 $85,993.94 $66,303.22 $3,173.59 $2,152.91 $2,029.80
Jun-69 $144,953.97 $78,521.41 $62,707.99 $3,241.62 $2,163.93 $2,042.84
Jul-69 $129,448.82 $72,910.50 $59,024.21 $3,267.31 $2,175.43 $2,052.15
Aug-69 $138,925.38 $77,050.80 $61,704.50 $3,244.83 $2,186.41 $2,061.46
Sep-69 $135,301.37 $76,235.83 $60,250.87 $3,072.50 $2,200.00 $2,070.77
Oct-69 $143,552.05 $82,457.13 $63,013.67 $3,184.72 $2,213.12 $2,078.22
Nov-69 $135,552.18 $79,262.00 $61,140.91 $3,107.21 $2,224.53 $2,089.39
Dec-69 $126,233.24 $77,439.21 $60,059.02 $3,085.98 $2,238.85 $2,102.43
Jan-70 $118,554.47 $71,743.33 $55,593.75 $3,079.38 $2,252.38 $2,109.88
Feb-70 $123,144.90 $76,296.02 $58,850.10 $3,260.13 $2,266.30 $2,121.05
Mar-70 $119,640.94 $75,932.54 $59,027.65 $3,238.03 $2,279.23 $2,132.22
Apr-70 $98,969.62 $66,256.69 $53,778.85 $3,104.23 $2,290.72 $2,145.26
May-70 $88,762.28 $60,440.41 $50,836.61 $2,958.83 $2,302.79 $2,154.57
Jun-70 $80,518.58 $57,121.56 $48,386.08 $3,102.74 $2,316.17 $2,165.74
Jul-70 $84,975.44 $61,881.56 $52,025.68 $3,201.86 $2,328.29 $2,173.19
Aug-70 $93,037.06 $65,661.60 $54,671.97 $3,195.71 $2,340.72 $2,176.92
Sep-70 $103,140.05 $70,483.98 $56,569.91 $3,268.53 $2,353.29 $2,188.09
Oct-70 $95,856.19 $67,678.37 $56,019.03 $3,233.04 $2,364.11 $2,199.26
Nov-70 $97,170.38 $70,778.92 $59,020.19 $3,488.84 $2,374.88 $2,206.71
Dec-70 $104,225.92 $76,909.57 $62,465.32 $3,459.57 $2,384.93 $2,217.89
Jan-71 $120,819.94 $82,831.30 $65,081.87 $3,634.50 $2,394.05 $2,219.75
Feb-71 $124,647.15 $84,585.92 $65,998.22 $3,575.22 $2,401.99 $2,223.47
Mar-71 $131,675.51 $88,875.36 $68,522.19 $3,763.34 $2,409.14 $2,230.92
Apr-71 $134,922.76 $91,798.55 $71,104.31 $3,656.80 $2,415.79 $2,238.37
May-71 $126,760.20 $88,689.80 $68,491.37 $3,654.64 $2,422.88 $2,249.54
Jun-71 $122,710.47 $88,898.93 $68,635.75 $3,596.65 $2,431.93 $2,262.58
Jul-71 $115,802.24 $84,515.94 $65,895.81 $3,607.30 $2,441.70 $2,268.17
Aug-71 $122,555.36 $88,983.03 $68,612.17 $3,777.15 $2,453.12 $2,273.75
Sep-71 $119,780.46 $88,594.36 $68,231.09 $3,854.03 $2,462.13 $2,275.62
Oct-71 $113,179.72 $84,848.50 $65,476.61 $3,918.32 $2,471.18 $2,279.34
Nov-71 $108,954.49 $83,513.32 $65,650.31 $3,900.02 $2,480.39 $2,283.07
Dec-71 $121,422.81 $92,476.47 $71,405.81 $3,917.26 $2,489.54 $2,292.38
Jan-72 $135,141.77 $95,480.85 $72,790.73 $3,892.39 $2,496.71 $2,294.24
Feb-72 $139,140.61 $98,366.66 $74,968.70 $3,926.66 $2,502.90 $2,305.41
Mar-72 $137,144.08 $99,415.25 $75,510.35 $3,894.54 $2,509.72 $2,309.14
Apr-72 $138,911.87 $99,357.59 $75,940.00 $3,905.10 $2,516.95 $2,314.72
May-72 $136,257.40 $99,481.89 $77,604.53 $4,010.68 $2,524.53 $2,322.17
Jun-72 $132,099.51 $96,070.65 $76,010.38 $3,984.77 $2,531.94 $2,327.76
Jul-72 $126,644.59 $93,923.57 $76,287.06 $4,070.66 $2,539.85 $2,337.07
Aug-72 $129,005.25 $97,029.43 $79,270.64 $4,082.27 $2,547.11 $2,340.79
Sep-72 $124,506.32 $94,999.19 $78,985.19 $4,048.56 $2,555.81 $2,350.11
Oct-72 $122,328.58 $94,994.91 $79,828.28 $4,143.44 $2,565.97 $2,357.56
Nov-72 $129,576.42 $101,508.05 $83,856.17 $4,237.15 $2,575.48 $2,363.14
Dec-72 $126,806.86 $100,224.18 $84,955.86 $4,140.00 $2,585.13 $2,370.59
Jan-73 $121,328.67 $94,000.36 $83,602.94 $4,007.10 $2,596.43 $2,378.04
Feb-73 $111,635.00 $88,167.26 $80,821.72 $4,012.70 $2,607.20 $2,394.80
Mar-73 $109,318.35 $85,821.57 $80,807.26 $4,045.60 $2,619.09 $2,417.15
Apr-73 $102,526.51 $80,438.92 $77,619.00 $4,064.01 $2,632.74 $2,433.91
May-73 $94,210.58 $75,668.65 $76,537.85 $4,021.50 $2,646.10 $2,448.80
Jun-73 $91,476.50 $73,060.81 $76,144.06 $4,013.01 $2,659.71 $2,465.56
Jul-73 $102,397.51 $80,435.28 $79,145.74 $3,839.17 $2,676.72 $2,471.15
Aug-73 $97,836.73 $78,395.76 $76,629.93 $3,989.46 $2,695.45 $2,515.84
Sep-73 $108,242.05 $87,304.97 $79,812.76 $4,116.29 $2,713.83 $2,523.29
Oct-73 $109,155.18 $86,536.25 $79,834.86 $4,204.89 $2,731.53 $2,543.78
Nov-73 $87,736.64 $72,273.34 $71,194.50 $4,128.11 $2,746.77 $2,562.40
Dec-73 $87,617.94 $74,096.58 $72,500.28 $4,094.17 $2,764.29 $2,579.16
Jan-74 $99,238.35 $77,597.20 $71,883.44 $4,060.27 $2,781.61 $2,601.51
Feb-74 $98,393.04 $78,422.45 $72,017.43 $4,050.49 $2,797.77 $2,635.03
Mar-74 $97,661.29 $76,398.60 $70,453.14 $3,932.34 $2,813.37 $2,664.82
Apr-74 $93,129.42 $71,613.14 $67,821.86 $3,832.97 $2,834.59 $2,679.72
May-74 $85,745.19 $67,059.26 $65,974.46 $3,879.99 $2,855.95 $2,709.52
Jun-74 $84,485.16 $64,828.81 $65,126.69 $3,897.31 $2,873.15 $2,735.59
Jul-74 $82,636.96 $62,286.16 $60,182.73 $3,886.00 $2,893.40 $2,756.07
Aug-74 $77,008.81 $56,978.07 $55,197.25 $3,795.73 $2,910.63 $2,791.45
Sep-74 $71,978.13 $52,524.09 $48,740.33 $3,889.60 $2,934.11 $2,824.97
Oct-74 $79,628.61 $59,963.29 $56,817.67 $4,079.89 $2,948.94 $2,849.18
Nov-74 $76,143.03 $58,602.12 $54,272.81 $4,200.45 $2,964.84 $2,873.39
Dec-74 $70,142.43 $56,245.91 $53,310.99 $4,272.46 $2,985.52 $2,893.88
Jan-75 $89,551.12 $69,134.37 $59,982.65 $4,368.47 $3,002.91 $2,906.91
Feb-75 $92,105.21 $72,559.98 $64,026.68 $4,425.90 $3,015.96 $2,927.40
Mar-75 $97,799.15 $77,448.49 $65,541.23 $4,307.68 $3,028.43 $2,938.57
Apr-75 $102,990.23 $81,197.85 $68,772.67 $4,229.33 $3,041.69 $2,953.47
May-75 $109,821.37 $86,138.34 $72,270.38 $4,319.04 $3,054.94 $2,966.51
Jun-75 $118,052.59 $92,213.50 $75,608.40 $4,445.13 $3,067.43 $2,990.72
Jul-75 $115,055.82 $87,109.76 $70,628.23 $4,406.51 $3,082.29 $3,022.37
Aug-75 $108,456.45 $84,179.48 $69,609.56 $4,376.54 $3,097.10 $3,031.68
Sep-75 $106,487.86 $81,058.94 $67,326.09 $4,333.61 $3,113.42 $3,046.58
Oct-75 $105,954.46 $85,745.53 $71,612.74 $4,539.41 $3,130.71 $3,065.20
Nov-75 $109,341.19 $89,288.62 $73,856.65 $4,490.02 $3,143.54 $3,083.82
Dec-75 $107,188.70 $88,838.87 $73,144.31 $4,665.35 $3,158.79 $3,096.86
Jan-76 $135,959.75 $103,215.40 $81,916.14 $4,707.45 $3,173.57 $3,104.31
Feb-76 $154,853.81 $107,034.88 $81,441.02 $4,736.41 $3,184.28 $3,111.76
Mar-76 $154,625.71 $109,076.79 $84,094.70 $4,814.84 $3,197.07 $3,119.21
Apr-76 $149,081.45 $107,647.77 $83,262.50 $4,823.73 $3,210.48 $3,132.24
May-76 $143,698.12 $105,841.66 $82,653.85 $4,747.37 $3,222.50 $3,150.86
Jun-76 $150,298.46 $112,477.19 $86,185.07 $4,845.95 $3,236.51 $3,167.62
Jul-76 $150,975.85 $111,977.79 $85,595.82 $4,883.67 $3,251.58 $3,186.25
Aug-76 $146,591.97 $111,323.95 $85,716.60 $4,986.95 $3,265.26 $3,201.14
Sep-76 $148,123.27 $114,143.90 $87,829.77 $5,059.27 $3,279.52 $3,214.18
Oct-76 $145,028.38 $111,634.45 $86,024.60 $5,101.70 $3,292.92 $3,227.22
Nov-76 $150,881.15 $115,648.49 $85,945.98 $5,274.43 $3,305.96 $3,236.53
Dec-76 $168,690.85 $124,350.80 $90,584.22 $5,447.02 $3,319.33 $3,245.84
Jan-77 $176,275.19 $121,821.51 $86,151.12 $5,235.79 $3,331.26 $3,264.46
Feb-77 $175,587.37 $119,238.65 $84,849.12 $5,210.03 $3,342.97 $3,297.98
Mar-77 $177,879.66 $119,627.49 $83,841.03 $5,257.48 $3,355.55 $3,318.46
Apr-77 $181,941.19 $121,609.12 $83,956.06 $5,294.69 $3,368.15 $3,344.53
May-77 $181,433.94 $120,743.14 $82,698.90 $5,360.91 $3,380.66 $3,363.16
Jun-77 $195,444.81 $127,536.39 $86,625.61 $5,448.97 $3,394.13 $3,385.50
Jul-77 $196,028.21 $125,016.91 $85,316.95 $5,410.77 $3,408.29 $3,400.40
Aug-77 $193,924.44 $122,929.37 $84,185.65 $5,517.94 $3,423.34 $3,413.44
Sep-77 $195,714.55 $123,479.48 $84,187.00 $5,502.21 $3,438.17 $3,426.47
Oct-77 $189,249.12 $119,521.23 $80,690.12 $5,450.99 $3,455.11 $3,435.78
Nov-77 $209,804.23 $127,429.35 $83,675.17 $5,501.86 $3,472.39 $3,452.54
Dec-77 $211,499.66 $128,415.52 $84,076.65 $5,409.54 $3,489.29 $3,465.58
Jan-78 $207,501.68 $122,079.63 $79,062.15 $5,366.10 $3,506.36 $3,484.20
Feb-78 $214,706.55 $121,677.38 $77,785.61 $5,368.30 $3,522.49 $3,508.41
Mar-78 $236,867.70 $128,171.54 $79,933.11 $5,357.18 $3,541.11 $3,532.62
Apr-78 $255,527.90 $137,510.63 $86,887.94 $5,354.61 $3,560.08 $3,564.27
May-78 $276,484.00 $142,893.35 $88,072.39 $5,323.40 $3,578.20 $3,599.66
Jun-78 $271,253.75 $142,291.63 $86,730.08 $5,290.28 $3,597.41 $3,636.90
Jul-78 $289,806.97 $151,427.60 $91,582.71 $5,365.82 $3,617.52 $3,662.97
Aug-78 $317,009.70 $159,887.26 $94,696.44 $5,482.65 $3,637.60 $3,681.59
Sep-78 $316,002.24 $157,544.59 $94,239.90 $5,424.64 $3,660.11 $3,707.66
Oct-78 $239,303.44 $135,703.39 $85,847.09 $5,316.20 $3,685.02 $3,737.46
Nov-78 $256,810.88 $139,940.73 $88,078.25 $5,416.47 $3,710.81 $3,757.94
Dec-78 $261,119.91 $141,555.37 $89,592.23 $5,345.84 $3,739.85 $3,778.43
Jan-79 $295,623.25 $151,371.10 $93,367.65 $5,448.02 $3,768.70 $3,811.95
Feb-79 $287,278.69 $146,157.43 $90,716.94 $5,374.63 $3,796.36 $3,856.64
Mar-79 $319,447.59 $158,316.55 $95,934.07 $5,444.16 $3,827.23 $3,893.88
Apr-79 $331,805.10 $160,382.27 $96,280.39 $5,383.08 $3,857.69 $3,938.58
May-79 $332,955.47 $159,078.20 $94,660.96 $5,523.67 $3,889.17 $3,986.99
Jun-79 $348,676.29 $168,993.86 $98,541.11 $5,695.57 $3,920.68 $4,024.24
Jul-79 $354,641.80 $174,371.08 $99,620.13 $5,647.10 $3,950.71 $4,076.38
Aug-79 $381,457.32 $187,068.78 $105,702.94 $5,627.17 $3,981.01 $4,117.34
Sep-79 $368,351.21 $186,140.92 $105,970.37 $5,558.63 $4,014.02 $4,160.18
Oct-79 $325,826.91 $169,769.45 $99,021.89 $5,091.37 $4,049.04 $4,197.42
Nov-79 $353,795.89 $182,297.25 $104,112.61 $5,249.90 $4,089.01 $4,236.53
Dec-79 $374,613.95 $188,373.22 $106,112.61 $5,279.87 $4,127.90 $4,281.22
Jan-80 $405,926.05 $197,633.65 $112,588.66 $4,888.69 $4,160.79 $4,342.67
Feb-80 $394,410.74 $190,908.17 $112,934.31 $4,660.34 $4,197.65 $4,402.27
Mar-80 $324,303.05 $166,941.18 $101,792.21 $4,513.72 $4,248.25 $4,465.58
Apr-80 $346,794.76 $178,498.35 $106,162.15 $5,201.37 $4,301.59 $4,515.86
May-80 $372,813.73 $192,317.87 $112,129.52 $5,419.18 $4,336.41 $4,560.55
Jun-80 $389,666.41 $200,957.94 $115,445.19 $5,613.48 $4,362.91 $4,610.83
Jul-80 $441,223.56 $218,663.34 $123,249.29 $5,346.28 $4,385.96 $4,614.56
Aug-80 $467,894.20 $223,749.89 $124,865.09 $5,115.48 $4,413.97 $4,644.35
Sep-80 $487,473.23 $230,682.11 $128,368.80 $4,981.66 $4,447.23 $4,687.18
Oct-80 $503,724.61 $233,541.41 $130,762.88 $4,850.69 $4,489.50 $4,728.15
Nov-80 $542,326.04 $251,611.91 $145,085.34 $4,899.28 $4,532.46 $4,770.98
Dec-80 $523,992.16 $246,074.19 $140,513.70 $5,071.50 $4,591.69 $4,811.95
Jan-81 $534,838.80 $242,216.73 $134,359.20 $5,013.07 $4,639.31 $4,851.06
Feb-81 $539,866.29 $248,400.04 $137,153.87 $4,794.75 $4,688.91 $4,901.34
Mar-81 $590,775.68 $269,063.69 $142,365.72 $4,978.98 $4,745.54 $4,936.72
Apr-81 $629,589.64 $269,522.71 $139,333.33 $4,721.32 $4,796.58 $4,968.38
May-81 $656,158.32 $276,433.28 $140,197.19 $5,014.94 $4,851.95 $5,009.35
Jun-81 $661,145.13 $272,431.63 $139,075.62 $4,925.02 $4,917.33 $5,052.18
Jul-81 $640,252.94 $268,528.23 $139,172.97 $4,751.22 $4,978.30 $5,109.91
Aug-81 $596,459.64 $254,070.40 $131,462.79 $4,567.87 $5,042.04 $5,149.01
Sep-81 $552,739.15 $238,454.98 $124,863.36 $4,501.68 $5,104.77 $5,201.16
Oct-81 $593,752.39 $253,224.40 $131,456.14 $4,874.87 $5,166.30 $5,212.33
Nov-81 $610,139.96 $264,781.31 $137,253.36 $5,562.24 $5,221.45 $5,227.23
Dec-81 $596,716.88 $257,891.70 $133,616.14 $5,165.71 $5,267.08 $5,242.13
Jan-82 $585,021.23 $248,913.72 $131,438.20 $5,189.37 $5,308.99 $5,260.75
Feb-82 $567,704.60 $239,928.68 $124,708.56 $5,283.80 $5,358.04 $5,277.51
Mar-82 $562,822.34 $238,960.81 $123,960.31 $5,405.82 $5,410.56 $5,271.92
Apr-82 $584,378.44 $251,047.92 $129,092.27 $5,607.67 $5,471.65 $5,294.27
May-82 $569,885.85 $240,977.14 $125,374.41 $5,626.75 $5,529.58 $5,346.41
Jun-82 $560,824.67 $237,322.23 $123,192.90 $5,501.38 $5,582.51 $5,411.59
Jul-82 $559,983.43 $230,449.38 $120,544.25 $5,777.12 $5,641.17 $5,441.38
Aug-82 $599,070.27 $259,854.72 $135,817.21 $6,228.22 $5,684.17 $5,452.55
Sep-82 $618,659.87 $266,031.47 $137,311.20 $6,613.33 $5,713.26 $5,461.87
Oct-82 $699,394.98 $302,513.70 $152,772.44 $7,032.84 $5,746.98 $5,476.77
Nov-82 $753,877.85 $320,482.41 $159,463.87 $7,031.43 $5,783.42 $5,467.46
Dec-82 $763,829.04 $324,036.23 $162,222.59 $7,250.66 $5,822.39 $5,445.09
Jan-83 $811,792.92 $335,736.86 $167,867.94 $7,026.62 $5,862.36 $5,458.13
Feb-83 $869,616.93 $347,863.00 $172,232.51 $7,372.08 $5,898.62 $5,459.99
Mar-83 $915,267.47 $361,566.37 $178,518.99 $7,302.86 $5,935.94 $5,463.71
Apr-83 $985,448.35 $384,904.39 $192,050.73 $7,558.14 $5,978.32 $5,502.82
May-83 $1,071,149.83 $400,982.62 $191,052.07 $7,266.55 $6,019.61 $5,532.62
Jun-83 $1,108,462.27 $415,459.30 $198,350.26 $7,294.92 $6,059.71 $5,551.24
Jul-83 $1,098,662.35 $403,256.01 $192,141.89 $6,940.09 $6,104.56 $5,573.59
Aug-83 $1,077,053.86 $403,047.93 $195,408.31 $6,953.95 $6,151.05 $5,592.21
Sep-83 $1,091,418.53 $414,779.45 $198,065.86 $7,304.88 $6,197.84 $5,620.14
Oct-83 $1,029,455.43 $402,241.91 $195,411.78 $7,208.75 $6,245.02 $5,635.04
Nov-83 $1,082,532.09 $420,584.54 $199,964.87 $7,341.01 $6,288.95 $5,644.35
Dec-83 $1,066,827.80 $414,793.93 $198,745.09 $7,297.92 $6,334.66 $5,651.80
Jan-84 $1,065,974.33 $402,600.24 $197,453.24 $7,475.67 $6,382.74 $5,683.46
Feb-84 $997,218.99 $381,042.60 $190,976.78 $7,342.61 $6,428.29 $5,709.53
Mar-84 $1,014,570.60 $387,618.26 $194,242.48 $7,227.77 $6,475.09 $5,722.56
Apr-84 $1,005,946.75 $382,893.58 $195,582.75 $7,151.52 $6,527.79 $5,750.49
May-84 $953,536.93 $362,248.72 $185,138.63 $6,782.43 $6,578.95 $5,767.26
Jun-84 $982,143.04 $372,265.62 $189,230.20 $6,883.97 $6,628.51 $5,785.88
Jul-84 $940,893.03 $360,341.96 $186,524.21 $7,361.00 $6,682.77 $5,804.50
Aug-84 $1,034,794.15 $403,719.92 $207,508.18 $7,557.12 $6,738.28 $5,828.71
Sep-84 $1,037,588.10 $406,392.95 $207,549.68 $7,815.95 $6,796.15 $5,856.65
Oct-84 $1,015,072.43 $407,180.54 $208,089.31 $8,254.33 $6,863.82 $5,871.54
Nov-84 $980,966.00 $405,301.40 $205,987.61 $8,351.73 $6,914.16 $5,871.54
Dec-84 $995,680.49 $414,408.12 $211,199.09 $8,427.41 $6,958.59 $5,875.27
Jan-85 $1,101,123.05 $454,735.00 $227,419.19 $8,734.18 $7,003.64 $5,886.44
Feb-85 $1,131,073.60 $460,114.97 $230,534.83 $8,303.67 $7,044.13 $5,910.65
Mar-85 $1,106,868.62 $457,971.76 $230,949.79 $8,558.47 $7,087.52 $5,936.73
Apr-85 $1,087,609.11 $454,417.44 $230,210.75 $8,765.86 $7,138.28 $5,960.93
May-85 $1,117,627.12 $479,285.88 $244,368.71 $9,551.03 $7,185.64 $5,983.28
Jun-85 $1,129,473.97 $490,475.77 $248,254.18 $9,686.43 $7,225.49 $6,001.83
Jul-85 $1,158,840.29 $492,366.07 $247,608.71 $9,512.27 $7,270.62 $6,011.14
Aug-85 $1,150,496.64 $491,075.08 $246,098.30 $9,758.54 $7,310.62 $6,024.18
Sep-85 $1,087,909.62 $468,930.05 $238,198.55 $9,738.15 $7,354.84 $6,042.80
Oct-85 $1,116,304.06 $490,003.30 $248,846.02 $10,066.87 $7,402.56 $6,061.42
Nov-85 $1,185,514.91 $521,864.78 $266,663.40 $10,470.89 $7,447.58 $6,081.90
Dec-85 $1,241,234.11 $543,455.90 $279,116.58 $11,037.11 $7,496.02 $6,096.80
Jan-86 $1,255,135.94 $554,165.78 $280,344.69 $11,009.19 $7,537.93 $6,115.42
Feb-86 $1,345,380.21 $592,859.30 $301,678.92 $12,270.26 $7,577.85 $6,098.66
Mar-86 $1,409,554.85 $622,242.00 $318,391.93 $13,214.73 $7,622.96 $6,070.73
Apr-86 $1,418,576.00 $615,312.71 $314,443.87 $13,109.14 $7,662.67 $6,057.70
May-86 $1,469,644.73 $642,900.26 $331,706.84 $12,446.74 $7,700.47 $6,076.32
Jun-86 $1,473,465.81 $644,909.32 $337,213.18 $13,210.28 $7,740.87 $6,106.11
Jul-86 $1,368,849.73 $606,142.53 $318,025.75 $13,067.61 $7,781.12 $6,107.94
Aug-86 $1,398,690.66 $654,873.36 $341,814.07 $13,720.04 $7,816.92 $6,118.94
Sep-86 $1,320,503.85 $615,140.23 $313,716.96 $13,033.90 $7,852.09 $6,148.92
Oct-86 $1,366,193.28 $650,592.60 $331,159.62 $13,410.50 $7,888.56 $6,154.51
Nov-86 $1,361,958.08 $658,754.94 $339,637.30 $13,768.71 $7,919.36 $6,160.10
Dec-86 $1,326,274.78 $637,734.07 $330,670.88 $13,744.61 $7,957.96 $6,165.69
Jan-87 $1,451,342.50 $718,270.32 $375,079.98 $13,965.53 $7,990.99 $6,202.93
Feb-87 $1,568,756.10 $755,741.04 $390,570.78 $14,247.34 $8,025.47 $6,227.14
Mar-87 $1,605,308.12 $769,692.78 $401,194.30 $13,930.33 $8,063.23 $6,255.08
Apr-87 $1,555,061.97 $754,653.75 $397,663.79 $13,271.43 $8,099.04 $6,288.60
May-87 $1,548,997.23 $760,734.00 $401,759.73 $13,131.68 $8,129.50 $6,307.22
Jun-87 $1,590,200.56 $789,950.75 $421,807.54 $13,260.28 $8,168.67 $6,333.28
Jul-87 $1,648,083.86 $834,583.75 $442,813.56 $13,023.85 $8,206.03 $6,346.32
Aug-87 $1,695,383.87 $857,557.34 $459,861.88 $12,809.61 $8,244.69 $6,381.70
Sep-87 $1,681,651.26 $847,466.46 $449,744.92 $12,337.32 $8,281.96 $6,413.36
Oct-87 $1,190,777.24 $639,914.30 $352,959.81 $13,105.71 $8,331.43 $6,430.12
Nov-87 $1,143,503.38 $610,420.01 $324,052.40 $13,154.08 $8,360.19 $6,439.43
Dec-87 $1,202,965.56 $658,225.05 $347,967.47 $13,371.57 $8,392.91 $6,437.57
Jan-88 $1,269,850.44 $689,811.96 $362,825.68 $14,262.73 $8,417.60 $6,454.30
Feb-88 $1,366,359.07 $743,631.77 $379,878.48 $14,337.17 $8,455.95 $6,471.04
Mar-88 $1,422,106.52 $748,752.42 $368,406.15 $13,897.45 $8,493.22 $6,498.93
Apr-88 $1,451,828.55 $754,907.17 $372,384.94 $13,675.23 $8,532.42 $6,532.40
May-88 $1,425,840.82 $755,802.49 $375,289.54 $13,536.02 $8,575.54 $6,554.71
Jun-88 $1,513,102.28 $805,685.45 $392,702.98 $14,034.71 $8,617.15 $6,582.61
Jul-88 $1,509,319.52 $794,732.96 $391,132.16 $13,796.68 $8,660.86 $6,610.50
Aug-88 $1,472,190.26 $781,236.01 $378,185.69 $13,876.47 $8,712.29 $6,638.39
Sep-88 $1,505,608.98 $800,459.11 $394,220.76 $14,354.90 $8,766.02 $6,683.02
Oct-88 $1,487,089.99 $808,028.25 $404,982.99 $14,796.34 $8,819.50 $6,705.33
Nov-88 $1,422,104.16 $790,724.32 $399,232.23 $14,505.89 $8,869.43 $6,710.91
Dec-88 $1,478,135.07 $810,118.42 $406,458.33 $14,665.01 $8,925.68 $6,722.07
Jan-89 $1,537,851.72 $857,600.27 $435,845.27 $14,963.10 $8,974.89 $6,755.54
Feb-89 $1,550,615.89 $855,396.24 $424,992.72 $14,694.96 $9,029.92 $6,783.43
Mar-89 $1,606,127.94 $865,767.06 $435,022.55 $14,874.80 $9,090.47 $6,822.48
Apr-89 $1,650,938.91 $905,800.13 $457,469.72 $15,111.25 $9,151.81 $6,867.11
May-89 $1,710,702.90 $940,286.66 $475,860.00 $15,717.48 $9,223.87 $6,906.16
Jun-89 $1,676,317.77 $940,831.08 $473,290.36 $16,582.21 $9,289.29 $6,922.89
Jul-89 $1,744,543.90 $1,007,468.27 $515,791.83 $16,976.50 $9,353.90 $6,939.62
Aug-89 $1,765,827.34 $1,038,795.49 $525,746.61 $16,537.49 $9,423.04 $6,950.78
Sep-89 $1,765,827.34 $1,019,288.99 $523,696.20 $16,569.47 $9,484.72 $6,973.09
Oct-89 $1,659,171.37 $967,456.11 $511,494.08 $17,198.12 $9,548.88 $7,006.56
Nov-89 $1,650,709.59 $984,947.71 $522,133.16 $17,332.44 $9,614.44 $7,023.30
Dec-89 $1,628,590.08 $1,002,677.76 $534,455.50 $17,321.52 $9,672.79 $7,034.46
Jan-90 $1,504,165.81 $929,741.97 $498,593.53 $16,727.74 $9,727.64 $7,106.98
Feb-90 $1,532,293.71 $947,302.94 $505,025.39 $16,686.42 $9,782.88 $7,140.45
Mar-90 $1,588,682.12 $969,608.14 $518,307.56 $16,613.33 $9,845.89 $7,179.51
Apr-90 $1,546,423.17 $928,343.55 $505,505.36 $16,277.74 $9,913.56 $7,190.66
May-90 $1,633,177.51 $1,007,446.78 $554,792.13 $16,953.64 $9,980.69 $7,207.40
Jun-90 $1,656,695.27 $996,498.85 $550,908.59 $17,344.41 $10,043.08 $7,246.45
Jul-90 $1,593,409.51 $977,307.28 $549,145.68 $17,529.52 $10,111.08 $7,274.34
Aug-90 $1,386,903.63 $880,832.39 $499,557.82 $16,795.91 $10,177.53 $7,341.28
Sep-90 $1,271,929.32 $823,250.62 $474,979.58 $16,992.14 $10,238.43 $7,402.64
Oct-90 $1,199,174.96 $790,324.71 $473,222.16 $17,357.88 $10,308.24 $7,447.27
Nov-90 $1,253,137.84 $860,249.48 $503,697.66 $18,055.68 $10,366.49 $7,464.01
Dec-90 $1,277,448.71 $895,011.30 $517,498.98 $18,392.42 $10,428.57 $7,464.01
Jan-91 $1,384,882.15 $951,102.55 $540,372.43 $18,632.17 $10,482.56 $7,508.63
Feb-91 $1,539,019.53 $1,039,170.85 $579,063.10 $18,688.81 $10,532.53 $7,519.79
Mar-91 $1,643,672.86 $1,072,685.15 $592,844.80 $18,760.01 $10,578.78 $7,530.95
Apr-91 $1,649,261.35 $1,085,449.03 $594,504.77 $19,023.20 $10,635.22 $7,542.10
May-91 $1,704,346.68 $1,137,165.25 $619,949.57 $19,024.13 $10,685.43 $7,564.42
Jun-91 $1,621,685.86 $1,087,682.64 $591,617.88 $18,903.90 $10,730.00 $7,586.73
Jul-91 $1,687,688.48 $1,135,930.06 $619,305.59 $19,201.54 $10,782.41 $7,597.89
Aug-91 $1,731,737.15 $1,164,687.27 $633,859.27 $19,855.18 $10,832.11 $7,620.21
Sep-91 $1,737,278.71 $1,153,903.43 $623,463.98 $20,457.68 $10,881.49 $7,653.68
Oct-91 $1,792,350.44 $1,170,523.10 $631,818.40 $20,568.93 $10,927.69 $7,664.83
Nov-91 $1,742,881.57 $1,118,567.09 $606,292.94 $20,737.59 $10,970.48 $7,687.15
Dec-91 $1,847,628.75 $1,230,610.60 $675,592.22 $21,942.05 $11,012.08 $7,692.73
Jan-92 $2,056,041.28 $1,266,466.90 $663,026.20 $21,230.91 $11,049.42 $7,703.88
Feb-92 $2,148,974.35 $1,301,122.50 $671,512.94 $21,339.32 $11,080.67 $7,731.77
Mar-92 $2,095,464.89 $1,273,880.90 $658,351.28 $21,139.73 $11,118.07 $7,770.82
Apr-92 $2,011,017.65 $1,284,615.90 $677,509.31 $21,173.31 $11,154.19 $7,781.98
May-92 $2,008,202.23 $1,284,784.18 $681,167.86 $21,686.96 $11,184.96 $7,793.14
Jun-92 $1,903,976.53 $1,254,568.63 $671,290.92 $22,120.80 $11,220.77 $7,821.03
Jul-92 $1,974,423.67 $1,312,847.10 $698,343.95 $23,000.72 $11,255.30 $7,837.77
Aug-92 $1,929,406.80 $1,289,503.37 $684,237.40 $23,154.56 $11,284.62 $7,860.08
Sep-92 $1,954,682.03 $1,311,038.07 $692,106.13 $23,583.97 $11,313.65 $7,882.39
Oct-92 $2,005,308.30 $1,349,987.70 $694,597.71 $23,116.77 $11,339.51 $7,910.29
Nov-92 $2,182,778.09 $1,417,167.14 $718,005.66 $23,139.83 $11,366.11 $7,921.44
Dec-92 $2,279,038.60 $1,457,549.32 $727,411.53 $23,709.23 $11,398.20 $7,915.86
Jan-93 $2,402,790.40 $1,495,530.14 $732,721.63 $24,373.99 $11,424.81 $7,954.91
Feb-93 $2,359,540.17 $1,500,279.94 $742,613.38 $25,236.55 $11,450.05 $7,982.81
Mar-93 $2,427,730.88 $1,559,932.57 $758,579.57 $25,290.20 $11,479.11 $8,010.70
Apr-93 $2,353,442.32 $1,521,360.12 $739,994.37 $25,472.00 $11,506.33 $8,033.01
May-93 $2,433,930.05 $1,573,878.99 $759,974.21 $25,590.63 $11,531.28 $8,044.17
Jun-93 $2,424,681.11 $1,598,404.75 $762,482.13 $26,738.84 $11,560.54 $8,055.33
Jul-93 $2,464,930.82 $1,594,950.60 $758,898.46 $27,250.88 $11,588.31 $8,055.33
Aug-93 $2,548,491.97 $1,670,332.75 $787,812.50 $28,433.02 $11,617.33 $8,077.64
Sep-93 $2,629,024.31 $1,674,062.60 $781,982.68 $28,447.88 $11,647.10 $8,094.38
Oct-93 $2,752,851.36 $1,685,842.98 $797,856.93 $28,721.97 $11,672.83 $8,127.85
Nov-93 $2,704,676.46 $1,644,253.23 $790,357.08 $27,978.77 $11,701.91 $8,133.42
Dec-93 $2,757,147.19 $1,710,707.37 $800,078.47 $28,033.90 $11,728.40 $8,133.42
Jan-94 $2,927,538.88 $1,762,230.46 $826,881.10 $28,755.26 $11,757.76 $8,155.74
Feb-94 $2,920,805.54 $1,735,025.14 $804,555.31 $27,462.48 $11,782.68 $8,183.64
Mar-94 $2,790,537.62 $1,659,849.97 $769,557.15 $26,377.78 $11,814.43 $8,211.53
Apr-94 $2,807,280.84 $1,676,554.70 $779,561.40 $25,981.13 $11,846.46 $8,222.68
May-94 $2,803,912.10 $1,668,676.57 $792,268.25 $25,767.14 $11,883.78 $8,228.26
Jun-94 $2,730,449.61 $1,627,316.76 $772,699.22 $25,508.25 $11,920.83 $8,256.16
Jul-94 $2,780,689.88 $1,679,316.04 $798,275.56 $26,435.00 $11,953.63 $8,278.47
Aug-94 $2,874,399.13 $1,753,459.52 $830,765.38 $26,208.52 $11,997.71 $8,311.94
Sep-94 $2,904,580.32 $1,712,198.86 $810,743.93 $25,341.70 $12,041.61 $8,334.25
Oct-94 $2,937,982.99 $1,716,534.15 $829,309.97 $25,279.60 $12,087.85 $8,339.83
Nov-94 $2,842,204.75 $1,631,050.75 $798,874.29 $25,446.74 $12,132.47 $8,350.99
Dec-94 $2,842,773.19 $1,655,198.46 $810,537.86 $25,855.55 $12,186.21 $8,350.99
Jan-95 $2,923,223.67 $1,681,231.42 $831,611.84 $26,561.13 $12,236.85 $8,384.46
Feb-95 $2,996,888.91 $1,756,611.11 $863,878.38 $27,322.42 $12,285.59 $8,417.93
Mar-95 $3,040,343.80 $1,804,693.07 $889,449.18 $27,572.32 $12,342.34 $8,445.82
Apr-95 $3,147,363.90 $1,829,507.60 $915,332.15 $28,039.29 $12,397.26 $8,473.72
May-95 $3,241,155.34 $1,876,697.92 $951,487.77 $30,255.19 $12,463.65 $8,490.45
Jun-95 $3,425,252.96 $1,924,236.55 $973,847.74 $30,675.24 $12,522.41 $8,507.19
Jul-95 $3,646,181.78 $2,002,908.96 $1,006,276.87 $30,160.79 $12,579.04 $8,507.19
Aug-95 $3,776,715.09 $2,031,720.81 $1,008,993.81 $30,873.00 $12,637.71 $8,529.50
Sep-95 $3,850,361.03 $2,061,215.30 $1,051,270.66 $31,412.75 $12,692.16 $8,546.24
Oct-95 $3,662,848.45 $2,005,855.18 $1,047,591.21 $32,336.53 $12,751.99 $8,574.13
Nov-95 $3,733,175.14 $2,107,273.22 $1,093,685.22 $33,142.51 $12,805.56 $8,568.55
Dec-95 $3,822,398.03 $2,136,539.03 $1,113,918.40 $34,043.58 $12,868.08 $8,562.97
Jan-96 $3,833,100.74 $2,176,599.14 $1,152,237.19 $34,006.91 $12,923.13 $8,613.18
Feb-96 $3,974,542.16 $2,220,300.90 $1,163,298.67 $32,366.07 $12,973.64 $8,641.07
Mar-96 $4,065,161.72 $2,279,793.86 $1,174,466.33 $31,686.53 $13,024.79 $8,685.70
Apr-96 $4,409,887.43 $2,346,452.75 $1,191,730.99 $31,163.32 $13,084.43 $8,719.17
May-96 $4,740,188.00 $2,378,387.97 $1,222,477.65 $30,993.68 $13,139.81 $8,735.91
Jun-96 $4,464,309 $2,350,480 $1,227,490 $31,622 $13,192 $8,741
</TABLE>
Source: Prudential Investment Corporation based on data from Ibbotson
Associates' EnCORR Software, Chicago, Illinois. Used with permission. This chart
is for illustrative purposes only and is not indicative of the past, present, or
future performance of any portfolio.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Source of mid-sized stock performance: University of Chicago's Center for
Research in Security Prices (CRSP). Mid-sized stocks are comprised of an index
of medium-sized companies listed on the New York Stock Exchange (NYSE). All
eligible comapanies listed on the NYSE are ranked by market capitalization and
then split into ten equally populated groups, or declines. The 3-5 declines
represents mid-size companies in this example.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each year
a new bond with a then-current coupon replaces the old bond. Treasury bill
returns are for a one-month bill. Treasuries are guaranteed by the government as
to the timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
IMPACT OF INFLATION. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.
A-1
<PAGE>
The chart below shows the growth over 15 years of a $1,000 investment made
in the S&P MidCap 400 Index and the S&P 500 stock index on June 30, 1981 with an
ending value on June 30, 1996.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500 S&P Midcap 400
06/30/81 $1,000.00 $1,000.00
$1,002.10 $994.10
$944.28 $949.96
$897.73 $890.21
$946.20 $956.35
$985.28 $1,007.42
$960.06 $979.62
$947.48 $939.45
$894.52 $914.46
$889.87 $906.78
$930.09 $950.13
$898.37 $934.26
$884.90 $909.50
$869.14 $878.30
$974.66 $970.00
$986.84 $1,001.43
$1,100.43 $1,105.28
$1,144.89 $1,170.93
$1,166.98 $1,201.96
$1,210.39 $1,262.18
$1,238.11 $1,303.32
$1,283.80 $1,357.54
$1,384.96 $1,440.62
$1,372.91 $1,497.82
$1,426.32 $1,547.69
$1,384.24 $1,523.86
$1,405.00 $1,499.78
$1,424.39 $1,552.12
$1,407.87 $1,483.99
$1,437.58 $1,534.00
$1,430.10 $1,515.43
$1,422.09 $1,472.09
$1,372.04 $1,401.43
$1,395.77 $1,423.44
$1,409.03 $1,405.64
$1,330.97 $1,346.18
06/30/84 $1,359.85 $1,396.94
$1,342.99 $1,342.18
$1,491.26 $1,499.34
$1,491.56 $1,497.09
$1,497.37 $1,487.36
$1,480.60 $1,482.16
$1,519.54 $1,533.14
$1,637.91 $1,663.92
$1,657.90 $1,678.23
$1,659.06 $1,691.82
$1,657.56 $1,707.22
$1,753.37 $1,791.90
$1,780.90 $1,867.16
$1,778.23 $1,868.65
$1,763.11 $1,855.20
$1,707.93 $1,766.52
$1,786.83 $1,864.38
$1,909.41 $1,980.35
$2,001.83 $2,078.38
$2,013.04 $2,113.09
$2,163.41 $2,268.61
$2,284.13 $2,378.18
$2,258.32 $2,395.78
$2,378.46 $2,490.17
$2,418.66 $2,556.66
$2,283.45 $2,430.36
$2,452.89 $2,563.06
$2,250.03 $2,360.58
$2,379.86 $2,459.72
$2,437.69 $2,458.74
$2,375.53 $2,415.47
$2,695.51 $2,726.09
$2,801.98 $2,853.13
$2,882.96 $2,920.46
$2,857.30 $2,823.51
$2,882.16 $2,794.42
06/30/87 $3,027.71 $2,895.58
$3,181.22 $2,976.95
$3,299.88 $3,085.01
$3,227.61 $3,025.16
$2,532.38 $2,310.32
$2,323.71 $2,196.42
$2,500.55 $2,366.20
$2,605.57 $2,474.81
$2,726.99 $2,631.96
$2,642.73 $2,674.60
$2,672.06 $2,688.24
$2,696.64 $2,632.05
$2,818.80 $2,821.82
$2,808.09 $2,745.92
$2,712.90 $2,681.94
$2,828.47 $2,784.39
$2,907.10 $2,803.60
$2,865.53 $2,748.93
$2,915.39 $2,859.99
$3,128.79 $3,055.04
$3,050.88 $3,064.81
$3,121.97 $3,132.85
$3,284.00 $3,302.34
$3,417.00 $3,461.84
$3,397.53 $3,446.26
$3,704.32 $3,651.32
$3,776.56 $3,780.94
$3,761.07 $3,822.91
$3,673.82 $3,661.96
$3,748.76 $3,742.89
$3,838.73 $3,876.51
$3,581.15 $3,548.56
$3,627.35 $3,675.95
$3,723.47 $3,755.35
$3,630.76 $3,609.27
$3,984.76 $3,961.90
06/30/90 $3,958.06 $3,978.14
$3,945.40 $3,887.04
$3,588.73 $3,484.34
$3,413.96 $3,271.10
$3,399.28 $3,171.33
$3,618.87 $3,476.41
$3,719.84 $3,678.05
$3,881.65 $3,968.61
$4,159.19 $4,324.99
$4,259.84 $4,522.65
$4,270.07 $4,521.29
$4,454.11 $4,729.72
$4,250.11 $4,489.45
$4,448.16 $4,759.72
$4,553.59 $4,932.97
$4,477.54 $4,917.18
$4,537.54 $5,184.19
$4,354.68 $4,937.42
$4,852.85 $5,521.02
$4,762.59 $5,618.75
$4,824.50 $5,708.08
$4,730.91 $5,492.89
$4,870.00 $5,427.52
$4,893.86 $5,479.08
$4,820.94 $5,322.38
$5,018.12 $5,586.37
$4,915.25 $5,452.86
$4,973.25 $5,529.20
$4,990.65 $5,661.35
$5,160.83 $5,977.82
$5,224.31 $6,178.07
$5,268.20 $6,255.30
$5,339.84 $6,167.72
$5,452.51 $6,380.51
$5,320.56 $6,213.34
$5,462.62 $6,496.67
06/30/93 $5,478.46 $6,529.15
$5,456.55 $6,516.75
$5,663.35 $6,785.89
$5,619.75 $6,857.82
$5,736.07 $6,880.45
$5,681.58 $6,728.39
$5,750.33 $7,040.59
$5,945.84 $7,204.64
$5,784.71 $7,102.33
$5,532.49 $6,773.49
$5,603.31 $6,823.62
$5,695.20 $6,758.79
$5,555.67 $6,526.29
$5,737.90 $6,746.88
$5,973.15 $7,100.41
$5,826.81 $6,967.64
$5,957.91 $7,043.58
$5,741.05 $6,725.92
$5,826.01 $6,787.80
$5,976.91 $6,858.39
$6,210.01 $7,218.45
$6,393.20 $7,336.84
$6,581.16 $7,490.91
$6,844.41 $7,671.44
$7,003.20 $7,983.67
$7,235.70 $8,398.82
$7,253.79 $8,555.88
$7,559.90 $8,762.93
$7,532.69 $8,537.72
$7,864.13 $8,910.82
$8,015.12 $8,888.54
$8,287.63 $9,017.43
$8,364.71 $9,323.12
$8,445.01 $9,435.00
$8,569.99 $9,722.76
$8,791.10 $9,854.02
06/30/96 $8,824.51 $9,706.21
<CAPTION>
QTLY
<S> <C>
Value
06/30/81
$890.21
$979.62
$906.78
$909.50
$1,001.43
$1,201.96
$1,357.54
$1,547.69
$1,552.12
$1,515.43
$1,423.44
06/30/84 $1,396.94
$1,497.09
$1,533.14
$1,691.82
$1,867.16
$1,766.52
$2,078.38
$2,378.18
$2,556.66
$2,360.58
$2,415.47
$2,920.46
06/30/87 $2,895.58
$3,025.16
$2,366.20
$2,674.60
$2,821.82
$2,784.39
$2,859.99
$3,132.85
$3,446.26
$3,822.91
$3,876.51
$3,755.35
06/30/90 $3,978.14
$3,271.10
$3,678.05
$4,522.65
$4,489.45
$4,917.18
$5,521.02
$5,492.89
$5,322.38
$5,529.20
$6,178.07
$6,380.51
06/30/93 $6,529.15
$6,857.82
$7,040.59
$6,773.49
$6,526.29
$6,967.64
$6,787.80
$7,336.84
$7,983.67
$8,762.93
$8,888.54
$9,435.00
06/30/96 $9,706.21
</TABLE>
Source: Lipper Analytical Services. Past performance is not indicative of future
returns. This chart is for illustrative purposes only and is not intended to
represent the past, present or future performance of any Prudential Mutual Fund.
The Standard & Poor's MidCap 400 Index consists of 400 domestic stocks chosen
for market size (median market capitalization of $676 million), liquidity and
industry group representation. It is a market-value-weighted index (stock price
times shares outstanding) and with each stock affecting the index in proportion
to its market value. The index is comprised of industrials, utilities,
financials and transportation in size order. The Standard & Poor's 500 Stock
Index, a market-value-weighted index made up of 500 of the largest stocks in the
U.S. based on their stock market value. Investors cannot invest directly in
indices.
A-2
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987
through 1995. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
[CHART]
(1)LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.
(2)LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15-and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
(3)LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
(4)LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
(5)SALOMON BROTHERS WORLD GOVERNMENT INDEX (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
A-3
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from 1986 through 1995. It does not represent the performance of any
Prudential Mutual Fund.
[CHART]
Source: Morgan Stanley Capital International (MSCI) Used with permission. Morgan
Stanley Country indices are unmanaged indices which include those stocks making
up the largest two-thirds of each country's total stock market capitalization.
Returns reflect the reinvestment of all distributions. This chart is for
illustrative purposes only and is not indicative of the past, present or future
performance of any specific investment. Investors cannot invest directly in
stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
[CHART]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
A-4
<PAGE>
[CHART]
Source: Morgan Stanley Capital International, December 1995. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of 1579 companies
in 22 countries (representing approximately 60% of the aggregate market value of
the stock exchanges). This chart is for illustrative purposes only and does not
represent the allocation of any Prudential Mutual Fund.
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
[CHART]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1994. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of annual
total returns for major stock and bond indices for the period from December 31,
1975 through December 31, 1995. The horizontal "Best Returns Zone" band shows
that a hypothetical blended portfolio constructed of one-third U.S. stocks (S&P
500), one-third foreign stocks (EAFE Index), and one-third U.S. bonds (Lehman
Index) would have eliminated the "highest highs" and "lowest lows" of any single
asset class.
[CHART]
* Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes all
publicly-issued investment grade debt with maturities over one year, including
U.S. government and agency issues, 15 and 30 year fixed-rate government agency
mortgage securities, dollar denominated SEC registered corporate and government
securities, as well as asset-backed securities. Investors cannot invest directly
in stock or bond market indices.
A-5
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks and (general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
A-6
<PAGE>
APPENDIX--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the Rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
MONEY MANAGEMENT. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k) plans.
In July 1995, Institutional Investor ranked Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1994. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over
$190 billion in assets of institutions and individuals.
REAL ESTATE. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.(2)
HEALTHCARE. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is one of the sixteenth largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
- ---------------
(1)Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate Fund,
Inc., Jennison Associates Capital Corp. as the subadviser to Prudential Jennison
Fund, Inc. and BlackRock Financial Management, Inc. as subadviser to The
BlackRock Government Income Trust. There are multiple subadvisers for The Target
Portfolio Trust.
(2)As of December 31, 1994.
A-7
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
EQUITY FUNDS. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
TRADING DATA.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.(5) Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)
- ---------------
(3)As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4)Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-US accounts managed by
Prudential Mutual Fund Investment Management, a division of PIC, for the year
ended December 31, 1995.
(5)Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate U.S.
Government, Short Investment Grade Debt, Intermediate Investment Grade Debt,
General U.S. Treasury, General U.S. Government and Mortgage funds.
(6)As of December 31, 1994.
A-8
<PAGE>
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.(7)
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment areas. Prudential
Securities is the only Wall Street firm to have its own in-house Certified
Financial Planner (CFP) program. In the December 1995 issue of Registered Rep,
an industry publication, Prudential Securities' Financial Advisor training
programs received a grade of A-(compared to an industry average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect-SM-, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ---------------
(7)As of December 31, 1994.
(8)On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research directors,
asking them to evaluate analysts in 76 industry sectors. Scores are produced by
taking the number of votes awarded to an individual analyst and weighting them
based on the size of the voting institution. In total, the magazine sends its
survey to approximately 2,000 institutions and a group of European and Asian
institutions.
A-9
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) Financial Statements included in the Prospectus constituting Part A of
this Registration Statement:
None.
(2) Financial Statements included in the Statement of Additional Information
constituting Part B of this Registration Statement:
(a) Statement of Assets and Liabilities.
(b) Report of Independent Auditors.
(B) EXHIBITS:
1. (a) Articles of Incorporation.*
(b) Articles of Amendment.**
2. By-Laws.**
3. Not Applicable.
4. Instruments defining rights of shareholders.**
5. (a) Form of Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc.**
(b) Form of Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.**
6. (a) Form of Distribution Agreement between the Registrant and Prudential
Securities Incorporated.**
(b) Selected Dealer Agreement.**
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank and
Trust Company.**
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc.**
10. Opinion of Gardner, Carton & Douglas.**
11. Consent of Independent Accountants.**
12. Not Applicable.
13. Form of Purchase Agreement.**
14. Not Applicable.
15. (a) Form of Distribution and Service Plan for Class A Shares.**
(b) Form of Distribution and Service Plan for Class B Shares.**
(c) Form of Distribution and Service Plan for Class C Shares.**
16. Not applicable.
18. Rule 18f-3 Plan.**
- ------------------------
* Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on or about September 11, 1996
(File Nos. 333-11785 and 811-07811).
** Filed herewith.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of October 22, 1996, Prudential Mutual Fund Management LLC is the sole
holder of the Class A, Class B, Class C and Class Z shares of Registrant.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any shareholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of the Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit 6(a) to
the Registration Statement), each Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant will purchase an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not
C-2
<PAGE>
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of one's office, no indemnification will
be permitted unless an independent legal counsel (not including a counsel who
does work for either the Registrant, its investment adviser, its principal
underwriter or persons affiliated with these persons) determines, based upon a
review of the facts, that the person in question was not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Under its Articles of Incorporation, the Registrant may advance funds to
provide for indemnification. Pursuant to the Securities and Exchange Commission
staff's position on Section 17(h) advances will be limited in the following
respect:
(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including
cost connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise by, or on behalf
of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or other suitable
insurance; and
(4) Such surety bond or other insurance must be paid for by the recipient of
such advance.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Mutual Fund Management LLC
See "Management of the Fund--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center 2, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities Incorporated (Prudential
Securities)
Frank W. Giordano Executive Vice President, General Executive Vice President, General Counsel, Secretary
Counsel, Secretary and Director and Director, PMF; Senior Vice President, Prudential
Securities; Director, Prudential Mutual Fund Services,
Inc. (PMFS)
Robert F. Gunia Executive Vice President, Chief Executive Vice President, Chief Financial and
Financial and Administrative Administrative Officer, Treasurer and Director, PMF;
Officer, Treasurer and Director Senior Vice President, Prudential Securities;
Comptroller, Prudential Investments of The Prudential
Insurance Company of America (Prudential); Director,
PMFS
Timothy J. O'Brien Director Director, PMF; National Sales Director, Prudential
Raritan Plaza One Retirement Services
Edison, NJ 08837
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
Richard A. Redeker Director Director, PMF; Executive Vice President, Director and
Member of the Operating Committee, Prudential
Securities; Director, Prudential Securities Group,
Inc. (PSG); Executive Vice President, The Prudential
Investment Corporation (PIC); Director, PMFS
S. Jane Rose Senior Vice President, Senior Senior Vice President, Senior Counsel, and Assistant
Counsel and Assistant Secretary Secretary, PMF; Senior Vice President and Senior
Counsel, Prudential Securities
Brian Storms President and Chief Executive President and Chief Executive Officer, PMF
Officer
Donald Webber Executive Vice President and Executive Vice President and Director of Sales, PMF
Director of Sales
</TABLE>
(b) The Prudential Investment Corporation
See "Management of the Fund--Subadviser" in the Prospectus constituting Part
A of this Registration Statement and "Subadviser" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Gateway Center 2, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
President, PIC
E. Michael Caulfield Chairman of the Board, President, Chief Executive Officer, Prudential Investments of
Chief Executive Officer and Director Prudential; Chairman of the Board, President, Chief
Executive Officer and Director, PIC
Jonathan M. Greene Senior Vice President and Director President--Investment Management, Prudential
Investments of Prudential; Senior Vice President and
Director, PIC
Mendel A. Melzer Vice President Vice President, Prudential; Vice President, PIC;
Director, PMF; President, Prudential Mutual Fund
Investment Management (PMFIM)
Richard A. Redeker Executive Vice President Director, PMF; Executive Vice President, Director and
Member of the Operating Committee, Prudential
Securities; Director, Prudential Securities Group,
Inc. (PSG); Executive Vice President, The Prudential
Investment Corporation (PIC); Director, PMFS
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for The BlackRock
Government Income Trust, Command Money Fund, Command Government Fund, Command
Tax-Free Fund, The Global Government Plus Fund, Inc., the Global Total Return
Fund, Inc., Global Utility Fund, Inc., Nicholas Applegate Fund, Inc.
(Nicholas-Applegate Equity Fund), Prudential Allocation Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc.,
C-4
<PAGE>
Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global
Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc., Prudential
Government Income Fund, Inc., Prudential Government Securities Trust, Prudential
High Yield Fund, Inc., Prudential Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Jennison Fund,
Inc., Prudential MoneyMart Assets, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential National Municipals Fund, Inc., Prudential
Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Small Companies Fund, Inc., Prudential Special Money Market Fund, Prudential
Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund, Prudential
Utility Fund, Inc., Prudential World Fund, Inc. and The Target Portfolio Trust.
Prudential Securities is also a depositor for the following unit investment
trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trust
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below:
<TABLE>
<CAPTION>
POSITIONS
AND
POSITIONS AND OFFICES
OFFICES WITH WITH
NAME (1) UNDERWRITER REGISTRANT
- --------------------------------- --------------------------------------------- -----------
<S> <C> <C>
Robert Golden.................... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Alan D. Hogan.................... Executive Vice President Chief Administrative None
Officer and Director
George A. Murray................. Executive Vice President and Director None
Leland B. Paton.................. Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff................ Executive Vice President, Chief Financial None
Officer and Director
Vincent T. Pica, II.............. Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Richard A. Redeker............... Executive Vice President and Director Director
Hardwick Simmons................. Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr............... Executive Vice President, Secretary, General None
Counsel and Director
</TABLE>
- ------------------------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
C-5
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey, the Registrant, Gateway Center 2, Newark,
New Jersey, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10)
and (11), 31a-1(f), Rules 31a-1(b)(4) and (11) and 31a-1(d) will be kept at
Gateway Center 2, Newark, New Jersey and the remaining accounts, books and other
documents required by such other pertinent provisions of Section 31(a) and the
Rules promulgated thereunder will be kept by State Street Bank and Trust Company
and Prudential Mutual Fund Services, Inc.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "Management of the Fund--Manager"
and "Management of the Fund-- Distributor" in the Prospectus and the captions
"Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKING
Registrant makes the following undertaking:
The Registrant hereby undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of Registrant's 1933 Act registration statement.
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 24th day of
October, 1996.
PRUDENTIAL EMERGING GROWTH FUND, INC.
By /s/ RICHARD A. REDEKER
------------------------------------------
Richard A. Redeker
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROBERT F. GUNIA
- ------------------------------ Director October 24, 1996
Robert F. Gunia
/s/ EDWARD D. BEACH
- ------------------------------ Director October 24, 1996
Edward D. Beach
/s/ DELAYNE DEDRICK GOLD
- ------------------------------ Director October 24, 1996
Delayne Dedrick Gold
/s/ DONALD D. LENNOX
- ------------------------------ Director October 24, 1996
Donald D. Lennox
/s/ DOUGLAS H. MCCORKINDALE
- ------------------------------ Director October 24, 1996
Douglas H. McCorkindale
/s/ MENDEL A. MELZER
- ------------------------------ Director October 24, 1996
Mendel A. Melzer
/s/ THOMAS T. MOONEY
- ------------------------------ Director October 24, 1996
Thomas T. Mooney
/s/ STEPHEN P. MUNN
- ------------------------------ Director October 24, 1996
Stephen P. Munn
/s/ RICHARD A. REDEKER
- ------------------------------ President and Director October 24, 1996
Richard A. Redeker
/s/ ROBIN B. SMITH
- ------------------------------ Director October 24, 1996
Robin B. Smith
/s/ LOUIS A. WEIL, III
- ------------------------------ Director October 24, 1996
Louis A. Weil, III
/s/ CLAY T. WHITEHEAD
- ------------------------------ Director October 24, 1996
Clay T. Whitehead
/s/ GRACE C. TORRES Treasurer and Principal
- ------------------------------ Financial and Accounting October 24, 1996
Grace C. Torres Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ----------- ----------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1. (a) Articles of Incorporation.*
(b) Articles of Amendment.**
2. By-Laws.**
3. Not Applicable.
4. Instruments defining rights of shareholders.**
5. (a) Form of Management Agreement between the Registrant and Prudential Mutual Fund Management, Inc.**
(b) Form of Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The Prudential
Investment Corporation.**
6. (a) Form of Distribution Agreement between the Registrant and Prudential Securities Incorporated.**
(b) Selected Dealer Agreement.**
7. Not Applicable.
8. Custodian Contract between the Registrant and State Street Bank and Trust Company.**
9. Transfer Agency and Service Agreement between the Registrant and Prudential Mutual Fund Services,
Inc.**
10. Opinion of Gardner, Carton & Douglas.**
11. Consent of Independent Accountants.**
12. Not Applicable.
13. Form of Purchase Agreement.**
14. Not Applicable.
15. (a) Form of Distribution and Service Plan for Class A Shares.**
(b) Form of Distribution and Service Plan for Class B Shares.**
(c) Form of Distribution and Service Plan for Class C Shares.**
16. Not Applicable
18. Rule 18f-3 Plan.**
</TABLE>
- ------------------------
* Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on or about September 11, 1996
(File Nos. 333-11785 and 811-07811).
** Filed herewith.
<PAGE>
EXHIBIT 1(b)
<PAGE>
PRUDENTIAL SELECTED GROWTH FUND, INC.
ARTICLES OF AMENDMENT
Prudential Selected Growth Fund, Inc., a Maryland corporation having
its principal office in Baltimore City, Maryland (hereinafter called the
"corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the corporation is hereby amended by striking
out Article I. and inserting in lieu thereof the following:
The name of the corporation is Prudential Emerging Growth Fund, Inc.
SECOND: The amendment of the charter of the corporation as
hereinabove set forth has been duly advised by the board of directors and there
is no stock entitled to vote on the matter.
IN WITNESS WHEREOF, Prudential Selected Growth Fund, Inc., has caused
these presents to be signed in its name and on its behalf by its President and
Assistant Secretary on October 14, 1996.
PRUDENTIAL SELECTED GROWTH FUND, INC.
By: /s/ Robert F. Gunia
------------------------------------
Robert F. Gunia
President
ATTEST:
By: /s/ Robert Nisi
---------------------------
Robert Nisi
Assistant Secretary
<PAGE>
THE UNDERSIGNED, President of Prudential Selected Growth Fund, Inc., who
executed on behalf of said corporation, the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information, and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/ Robert F. Gunia
------------------------------------
Robert F. Gunia
President
2
<PAGE>
EXHIBIT 2
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
By-Laws
ARTICLE I.
STOCKHOLDERS
Section 1. PLACE OF MEETING. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders of the
Corporation shall be held on a date and at such hour as may from time to time be
designated by the Board of Directors and stated in the notice of such meeting,
within the month ending four months after the end of the Corporation's fiscal
year, for the transaction of such business as may properly be brought before the
meeting; PROVIDED, however, that an annual meeting shall not be required to be
held in any year in which the election of directors is not required to be acted
on by stockholders under the Investment Company Act of 1940.
Section 3. MEETINGS. Meetings of the stockholders for any purpose or
purposes, including for purposes of voting on the removal of one or more
Directors, may be called by the Chairman of the Board, the President or a
majority of the Board of Directors, and shall be called by the Secretary upon
receipt of the request in writing signed by stockholders holding not less than
10% of the common stock issued and outstanding and entitled to vote thereat.
Such request shall state the purpose or purposes of the proposed
<PAGE>
meeting. The Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and mailing such notice of meeting and upon payment
to the Corporation of such costs, the Secretary shall give notice stating the
purpose or purposes of the meeting as required in this Article and by-law to all
stockholders entitled to notice of such meeting. No meeting need be called upon
the request of the holders of shares entitled to cast less than a majority of
all votes entitled to be cast at such meeting to consider any matter which is
substantially the same as a matter voted upon at any meeting of stockholders
held during the preceding twelve months.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than ten
days' and not more than ninety days' written or printed notice of every meeting
of stockholders, stating the time and place thereof and the general nature of
the business proposed to be transacted thereat, shall be given to each
stockholder entitled to vote thereat by leaving the same with such stockholder
or at such stockholder's residence or usual place of business or by mailing it,
postage prepaid, and addressed to such stockholder at such stockholder's address
as it appears upon the books of the Corporation. If mailed, notice shall be
deemed to be given when deposited in the United States mail addressed to the
stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. RECORD DATES. The Board of Directors may fix, in advance, a
date not
2
<PAGE>
exceeding ninety days preceding the date of any meeting of stockholders, any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to notice of and to vote at
such meeting or entitled to receive such dividends or rights, as the case may
be; and only stockholders of record on such date shall be entitled to notice of
and to vote at such meeting or to receive such dividends or rights, as the case
may be. In the case of a meeting of stockholders, such date shall not be less
than ten days prior to the date fixed for such meeting.
Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or by
proxy of the holders of record of one-third of the shares of the common stock of
the Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as otherwise
provided in the Articles of Incorporation. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the holders of a
majority of the stock present in person or by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until stockholders owning the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which
stockholders owning the requisite amount of stock entitled to vote thereat shall
be represented, any business may be transacted which might have been transacted
at the meeting as originally notified.
Section 7. VOTING AND INSPECTORS. At all meetings, stockholders of record
entitled to vote thereat shall have one vote for each share of common stock
standing in his or her name on the books of the Corporation (and such
stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of
3
<PAGE>
stockholders entitled to vote at such meeting, either in person or by proxy
appointed by instrument in writing subscribed by such stockholder or his or her
duly authorized attorney.
All questions shall be decided by a majority of the votes cast and all
elections of directors shall be decided by a plurality of the votes cast at a
duly constituted meeting, except as otherwise provided by statute or by the
Articles of Incorporation or by these By-Laws.
At any election of directors, the Chairman of the meeting may, and upon the
request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he or
she is not present, by the President, or if he or she is not present, by a
Vice-President, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he or she is not present, an Assistant
Secretary shall so act; if neither the Secretary nor the Assistant Secretary is
present, then the meeting shall elect its Secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be
4
<PAGE>
received and canvassed by the Secretary of the meeting, who shall decide all
questions concerning the qualification of voters, the validity of the proxies
and the acceptance or rejection of votes, unless inspectors of election shall
have been appointed by the Chairman of the meeting, in which event such
inspectors of election shall decide all such questions.
ARTICLE II.
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs of the
Corporation shall be conducted and managed by a Board of Directors of not less
than three nor more than fifteen directors, as may be determined from time to
time by vote of a majority of the directors then in office, provided that if
there is no stock outstanding the number of directors may be less than three but
not less than one. Directors need not be stockholders.
Section 2. VACANCIES. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of directors, a majority of the remaining directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next meeting of stockholders or until his or her successor is chosen
and qualifies.
Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors and may elect directors to fill the vacancies created by any
such increase in the number of directors until the next meeting of stockholders
or until their successors are duly chosen and
5
<PAGE>
qualified. The Board of Directors, by the vote of a majority of the entire
Board, may likewise decrease the number of directors to a number not less than
three.
Section 4. PLACE OF MEETING. The directors may hold their meetings, have
one or more offices, and keep the books of the Corporation, outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and on such notice as the directors may from time to
time determine.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board, the
President, the Secretary or two or more of the directors, by oral or telegraphic
or written notice duly served on or sent or mailed to each director not less
than one day before such meeting. No notice need be given to any director who
attends in person or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Such notice or waiver of notice need not state the purpose or purposes
of such meeting.
Section 7. QUORUM. One-third of the directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a
6
<PAGE>
quorum shall have been obtained. The act of the majority of the directors
present at any meeting at which there is a quorum shall be the act of the
directors, except as may be otherwise specifically provided by statute or by the
Articles of Incorporation or by these By-Laws.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the directors an
Executive Committee to consist of such number of directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by the Board of Directors. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or all
of the powers of the Board of Directors in the management of the business and
affairs of the Corporation. The Executive Committee may fix its own rules of
procedure, and may meet when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. During the absence of a member of the
Executive Committee, the remaining members may appoint a member of the Board of
Directors to act in his or her place.
Section 9. OTHER COMMITTEES. The Board of Directors, by the affirmative
vote of a majority of the whole Board, may appoint from the directors other
committees which shall in each case consist of such number of directors (not
less than two) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them.
7
<PAGE>
A majority of all the members of any such committee may determine its action and
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power at any time to
change the members and powers of any such committee, to fill vacancies and to
discharge any such committee.
Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
Participation in a meeting by these means constitutes presence in person at the
meeting unless otherwise provided by the Investment Company Act of 1940.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting, if a written consent to such action is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board or such
committee, unless otherwise provided by the Investment Company Act of 1940.
Section 12. COMPENSATION OF DIRECTORS. No director shall receive any
stated salary or fees from the Corporation for his or her services as such if
such director is, other than by reason of being such director, an interested
person (as such term is defined by the Investment Company Act of 1940) of the
Corporation or of its investment adviser, administrator or principal
underwriter. Except as provided in the preceding sentence, directors shall be
entitled to receive such compensation from the Corporation for their
8
<PAGE>
services as may from time to time be voted by the Board of Directors.
Section 13. REMOVAL OF DIRECTORS. No director shall continue to hold
office after the holders of record of not less than two-thirds of the
Corporation's outstanding common stock of all series have declared that that
director be removed from office either by declaration in writing filed with the
Corporation's secretary or by votes cast in person or by proxy at a meeting
called for the purpose. The directors shall promptly call a meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 percent of the Corporation's outstanding common stock of all
series.
ARTICLE III.
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the Corporation
shall be chosen by the Board of Directors. These may include a Chairman of the
Board of Directors and shall include a President, one or more Vice-Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Board of Directors or the Executive Committee may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed,
9
<PAGE>
acknowledged or verified by two or more officers.
Section 2. TERM OF OFFICE. The term of office of all officers shall be
one year and until their respective successors are chosen and qualified. Any
officer may be removed from office at any time with or without cause by the vote
of a majority of the whole Board of Directors.
Section 3. POWERS AND DUTIES. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV.
CAPITAL STOCK
Section 1. CERTIFICATES FOR SHARES. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of stock
of the Corporation owned by him or her in such form as the Board from time to
time prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his or her duly authorized attorney or legal representative, upon surrender
and cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
10
<PAGE>
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal office of the
Corporation or, if the Corporation employs a Transfer Agent, at the office of
the Transfer Agent of the Corporation.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors
or the Executive Committee may determine the conditions upon which a new
certificate of stock of the Corporation of any class may be issued in place of a
certificate which is alleged to have been lost, stolen or destroyed; and may, in
its discretion, require the owner of such certificate or such owner's legal
representative to give bond, with sufficient surety, to the Corporation and each
Transfer Agent, if any, to indemnify it and each such Transfer Agent against any
and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V.
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI.
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII.
INDEMNIFICATION
Directors, officers, employees and agents of the Corporation shall not be
liable to
11
<PAGE>
the Corporation, any stockholder, officer, director, employee or other person
for any action or failure to act except for willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
their office. The Corporation shall indemnify directors, officers, employees
and agents of the Corporation against judgments, fines, settlements and expenses
to the fullest extent authorized and in the manner permitted by applicable
federal and state law. The Corporation may purchase insurance to protect itself
and its directors, officers, employees and agents against judgments, fines,
settlements and expenses to the fullest extent authorized and in the manner
permitted by applicable federal and state law. Nothing contained in this
Article VII shall be construed to indemnify directors, officers, employees and
agents of the Corporation against, nor to permit the Corporation to purchase
insurance that purports to protect against, any liability to the Corporation or
any stockholder, officer, director, employee, agent or other person to whom he
or she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office.
ARTICLE VIII.
CUSTODIAN
Section 1. The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Corporation shall be kept in the
custody of one or more such custodians, provided such custodian or
12
<PAGE>
custodians can be found ready and willing to act, and further provided that the
Corporation may use as subcustodians, for the purpose of holding any foreign
securities and related funds of the Corporation, such foreign banks as the Board
of Directors may approve and as shall be permitted by law.
Section 2. The Corporation shall upon the resignation or inability to
serve of its custodian or upon change of the custodian:
(a) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(b) require that the cash and securities owned by the Corporation be
delivered directly to the successor custodian; and
(c) in the event that no successor custodian can be found, submit to
the stockholders before permitting delivery of the cash and securities
owned by the Corporation otherwise than to a successor custodian, the
question whether or not this Corporation shall be liquidated or shall
function without a custodian.
ARTICLE IX.
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by stockholders.
13
<PAGE>
EXHIBIT 4
<PAGE>
EXHIBIT 4
PRUDENTIAL EMERGING GROWTH FUND, INC.
INSTRUMENTS DEFINING RIGHTS OF SHAREHOLDERS
The following is a list of the provisions of the Articles of Incorporation and
By-Laws of Prudential Emerging Growth Fund, Inc. setting forth the rights of
shareholders.
I. RELEVANT PROVISIONS OF ARTICLES OF INCORPORATION:
ARTICLE IV - Common Stock
ARTICLE VI - Indemnification of Directors and Officers
ARTICLE VII - Miscellaneous
ARTICLE VIII - Amendments
II. RELEVANT PROVISIONS OF BY-LAWS:
ARTICLE I - Stockholders
ARTICLE IV - Capital Stock
ARTICLE VII - Indemnification
ARTICLE IX - Amendment of By-Laws
<PAGE>
EXHIBIT 5(a)
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
MANAGEMENT AGREEMENT
Agreement made this day of , 1996 between Prudential Emerging
Growth Fund, Inc., a Maryland corporation (the Fund), and Prudential Mutual Fund
Management, LLC, a New York limited liability company (the Manager).
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the 1940 Act);
and
WHEREAS, the Fund desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the Fund and the
Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day corporate affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the Fund and
administrator of its corporate affairs for the period and on the terms set forth
in this Agreement. The Manager accepts such appointment and agrees to render
the services herein described, for the compensation herein provided. The
Manager is authorized to enter into an agreement with The Prudential Investment
Corporation (PIC) pursuant to which PIC shall furnish to the Fund the investment
advisory services in connection with the management of the Fund (the Subadvisory
Agreement). The Manager will continue to
<PAGE>
have responsibility for all investment advisory services furnished pursuant to
the Subadvisory Agreement.
2. Subject to the supervision of the Board of Directors of the Fund, the
Manager shall administer the Fund's corporate affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance with
the Fund's investment objectives, policies and restrictions as stated in the
Prospectus (hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (hereinafter defined) of the Fund and
with the instructions and directions of the Board of Directors of the Fund
and will conform to and comply with the requirements of the 1940 Act and
all other applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by the Fund and will place orders pursuant to its
determinations
2
<PAGE>
with or through such persons, brokers, dealers or futures commission
merchants (including but not limited to Prudential Securities Incorporated)
in conformity with the policy with respect to brokerage as set forth in the
Fund's Registration Statement and Prospectus (hereinafter defined) or as
the Board of Directors may direct from time to time. In providing the Fund
with investment supervision, it is recognized that the Manager will give
primary consideration to securing the most favorable price and efficient
execution. Consistent with this policy, the Manager may consider the
financial responsibility, research and investment information and other
services provided by brokers, dealers or futures commission merchants who
may effect or be a party to any such transaction or other transactions to
which other clients of the Manager may be a party. It is understood that
Prudential Securities Incorporated may be used as principal broker for
securities transactions but that no formula has been adopted for allocation
of the Fund's investment transaction business. It is also understood that
it is desirable for the Fund that the Manager have access to supplemental
investment and market research and security and economic analysis provided
by brokers or futures commission merchants and that such brokers may
execute brokerage transactions at a higher cost to the Fund than may result
when allocating brokerage to other brokers or futures commission merchants
on the basis of seeking the most favorable price and efficient execution.
Therefore, the Manager is authorized to pay higher brokerage commissions
for the purchase and sale of securities and futures contracts for the Fund
to brokers or futures commission merchants who provide such research and
analysis, subject to review by the Fund's
3
<PAGE>
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided
by such broker or futures commission merchant may be useful to the Manager
in connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security
or a futures contract to be in the best interest of the Fund as well as
other clients of the Manager or the Subadviser, the Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts to be so sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities or futures contracts so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the Fund's portfolio transactions and shall render to the Fund's Board of
Directors such periodic and special reports as the Board may reasonably
request.
(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Fund (including those being maintained by
the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the Fund's
assets.
4
<PAGE>
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the
Secretary of State of Maryland (such Articles of Incorporation, as in
effect on the date hereof and as amended from time to time, are herein
called the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date
hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the Registration Statement), as filed
with the Securities and Exchange Commission (the Commission) relating to
the Fund and shares of the Fund's Common Stock and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Fund (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its officers and
employees
5
<PAGE>
who may be elected as directors or officers of the Fund to serve in the
capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to
be maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be maintained by the
Manager pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the
following expenses:
(i) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of directors who are not affiliated
persons of the Manager or the Fund's investment adviser,
(ii) all expenses incurred by the Manager or by the Fund in connection
with managing the ordinary course of the Fund's business other than those
assumed by the Fund herein, and
(iii) the costs and expenses payable to PIC pursuant to the
Subadvisory Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in connection with the
6
<PAGE>
management of the investment and reinvestment of the Fund's assets,
(b) the fees and expenses of directors who are not affiliated persons
of the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Fund and
the providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Fund pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the Fund, including the cost
of any pricing service or services which may be retained pursuant to the
authorization of the Board of Directors of the Fund, and (iv) for both mail
and wire orders, the cashiering function in connection with the issuance
and redemption of the Fund's securities,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable
to the Fund in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Fund to federal,
state or other governmental agencies,
7
<PAGE>
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of stock certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the Fund,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Securities and Exchange
Commission, registering the Fund as a broker or dealer and qualifying its
shares under state securities laws, including the preparation and printing
of the Fund's registration statements, prospectuses and statements of
additional information for filing under federal and state securities laws
for such purposes,
(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders,
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year
(including the fees payable to the Manager but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
expenses and other extraordinary expenses not
8
<PAGE>
incurred in the ordinary course of the Fund's business) exceed the lowest
applicable annual expense limitation established and enforced pursuant to the
statute or regulations of any jurisdictions in which shares of the Fund are then
qualified for offer and sale, the compensation due the Manager will be reduced
by the amount of such excess, or, if such reduction exceeds the compensation
payable to the Manager, the Manager will pay to the Fund the amount of such
reduction which exceeds the amount of such compensation.
8. For the services provided and the expenses assumed pursuant to
this Agreement, the Fund will pay to the Manager as full compensation therefor a
fee at an annual rate of .60 of 1% of the Fund's average daily net assets. This
fee will be computed daily and will be paid to the Manager monthly. Any
reduction in the fee payable and any payment by the Manager to the Fund pursuant
to paragraph 7 shall be made monthly. Any such reductions or payments are
subject to readjustment during the year.
9. The Manager shall not be liable for any error of judgment or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that
9
<PAGE>
this Agreement may be terminated by the Fund at any time, without the payment of
any penalty, by the Board of Directors of the Fund or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Fund, or
by the Manager at any time, without the payment of any penalty, on not more than
60 days' nor less than 30 days' written notice to the other party. This
Agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of
any officer or employee of the Manager who may also be a director, officer or
employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
12. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of
10
<PAGE>
this Agreement, the Fund will continue to furnish to the Manager copies of any
of the above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent
of the Fund must be obtained in conformity with the requirements of the 1940
Act.
15. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Gateway Center Three,
100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary; or (2) to the
Fund at One Seaport Plaza, New York, N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
17. The Fund may use the name "Prudential Emerging Growth Fund, Inc."
or any name including the word "Prudential" only for so long as this Agreement
or any extension, renewal or amendment hereof remains in effect, including any
similar agreement with any organization which shall have succeeded to the
Manager's business as Manager or any extension, renewal or amendment thereof
remain in effect. At such time as such an agreement shall no longer be in
effect, the Fund will (to the extent that it
11
<PAGE>
lawfully can) cease to use such a name or any other name indicating that it is
advised by, managed by or otherwise connected with the Manager, or any
organization which shall have so succeeded to such businesses. In no event
shall the Fund use the name "Prudential Emerging Growth Fund, Inc." or any name
including the word "Prudential" if the Manager's function is transferred or
assigned to a company of which The Prudential Insurance Company of America does
not have control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL EMERGING GROWTH FUND, INC.
By
-------------------------------
PRUDENTIAL MUTUAL FUND MANAGEMENT LLC
By
-------------------------------
12
<PAGE>
EXHIBIT 5(b)
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
SUBADVISORY AGREEMENT
Agreement made as of this day of , 1996 between Prudential Mutual
Fund Management LLC, a New York limited liability company (PMF or the Manager),
and The Prudential Investment Corporation, a New Jersey Corporation (the
Subadviser).
WHEREAS, the Manager has entered into a Management Agreement, dated
March , 1996 (the Management Agreement), with Prudential Emerging Growth Fund,
Inc. (the Fund), a Maryland corporation and a diversified open-end management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), pursuant to which PMF will act as Manager of the Fund.
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance
with the Fund's investment objectives, policies and restrictions as stated
in the Prospectus, (such Prospectus and Statement of Additional Information
as currently in effect and as amended or supplemented from time to time,
being herein called the "Prospectus"), and subject to the following
understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the Fund,
and what portion of the assets will be invested or held uninvested as
cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus of the Fund and with the
instructions and directions of the Manager and of the Board of
Directors of the Fund and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986 and
all other applicable federal and state laws and regulations.
<PAGE>
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Fund and will place orders
with or through such persons, brokers, dealers or futures commission
merchants (including but not limited to Prudential Securities
Incorporated) to carry out the policy with respect to brokerage as set
forth in the Fund's Registration Statement and Prospectus or as the
Board of Directors may direct from time to time. In providing the
Fund with investment supervision, it is recognized that the Subadviser
will give primary consideration to securing the most favorable price
and efficient execution. Within the framework of this policy, the
Subadviser may consider the financial responsibility, research and
investment information and other services provided by brokers, dealers
or futures commission merchants who may effect or be a party to any
such transaction or other transactions to which the Subadviser's other
clients may be a party. It is understood that Prudential Securities
Incorporated may be used as principal broker for securities
transactions but that no formula has been adopted for allocation of
the Fund's investment transaction business. It is also understood
that it is desirable for the Fund that the Subadviser have access to
supplemental investment and market research and security and economic
analysis provided by brokers or futures commission merchants who may
execute brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore,
the Subadviser is authorized to place orders for the purchase and sale
of securities and futures contracts for the Fund with such brokers or
futures commission merchants, subject to review by the Fund's Board of
Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers or futures commission merchants may be useful
to the Subadviser in connection with the Subadviser's services to
other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the Fund as
well as other clients of the Subadviser, the Subadviser, to the extent
permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities or futures contracts to be
sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of the securities or futures contracts so purchased or
sold, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients.
(iv) The Subadviser shall maintain all books and records with
respect
2
<PAGE>
to the Fund's portfolio transactions required by subparagraphs (b)(5),
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the
1940 Act and shall render to the Fund's Board of Directors such
periodic and special reports as the Directors may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions concerning
the Fund's assets and shall provide the Manager with such information
upon request of the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the
Fund to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records required to be
maintained by the Subadviser pursuant to paragraph 1(a) hereof and shall
timely furnish to the Manager all information relating to the Subadviser's
services hereunder needed by the Manager to keep the other books and
records of the Fund required by Rule 31a-1 under the 1940 Act. The
Subadviser agrees that all records which it maintains for the Fund are the
property of the Fund and the Subadviser will surrender promptly to the Fund
any of such records upon the Fund's request, provided however that the
Subadviser may retain a copy of such records. The Subadviser further
agrees to preserve for the periods prescribed by Rule 31a-2 of the
Commission under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs and
expenses incurred by the Subadviser determined in a manner acceptable to
the Manager in furnishing the services described in paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Fund or the Manager in connection with the matters
to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the Subadviser's part in the
performance of its duties or from
3
<PAGE>
its reckless disregard of its obligations and duties under this Agreement.
5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940
Act; provided, however, that this Agreement may be terminated by the Fund
at any time, without the payment of any penalty, by the Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Fund, or by the Manager or the
Subadviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other party.
This Agreement shall terminate automatically in the event of its assignment
(as defined in the 1940 Act) or upon the termination of the Management
Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees who may also be a
director, officer or employee of the Fund to engage in any other business
or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or a dissimilar nature,
nor limit or restrict the Subadviser's right to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature or other material prepared for
distribution to stockholders of the Fund or the public, which refer to the
Subadviser in any way, prior to use thereof and not to use material if the
Subadviser reasonably objects in writing five business days (or such other
time as may be mutually agreed) after receipt thereof. Sales literature
may be furnished to the Subadviser hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery.
8. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940
Act.
9. This Agreement shall be governed by the laws of the State of New York.
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL MUTUAL FUND MANAGEMENT LLC
BY
-------------------------
THE PRUDENTIAL INVESTMENT CORPORATION
BY
-------------------------
5
<PAGE>
EXHIBIT 6(a)
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
DISTRIBUTION AGREEMENT
Agreement made as of ________, 1996 between Prudential Emerging Growth
Fund, Inc., a Maryland corporation (the Fund), and Prudential Securities
Incorporated, a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, upon approval by the holders of the respective classes and/or
series of Shares of the Fund it is contemplated that the Fund will adopt a plan
(or plans) of distribution pursuant to Rule 12b-1 under the Investment Company
Act with respect to certain of its classes and/or series of Shares (the Plans)
authorizing payments by the Fund to the Distributor with respect to the
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Shares of the Fund to sell Shares to the public on behalf
of the Fund and the Distributor hereby accepts such appointment and agrees to
act hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund through the Distributor on the terms and conditions set forth
below.
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of
the Fund shall not apply to Shares of the Fund issued in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund
and delivered by the Distributor or selected dealers, as described in Section
6.4 hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of any or all classes
2
<PAGE>
and/or series of its Shares if a banking moratorium shall have been declared by
federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND
4.1 Any of the outstanding Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Articles of Incorporation as amended from time to time, and
in accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
3
<PAGE>
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell its Shares so long as it has Shares of
the respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
Shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Shares, but shall not be obligated to sell any specific number of
Shares. Sales of the Shares shall be on the terms described in the Prospectus.
The Distributor may enter into
4
<PAGE>
like arrangements with other investment companies. The Distributor shall
compensate the selected dealers as set forth in the Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD. Shares sold to selected dealers shall be
for resale by such dealers only at the offering price determined as set forth in
the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Rule 2830 of the Conduct Rules of the NASD Rules of Fair Practice. Payment
of these amounts to the Distributor is not contingent upon the adoption or
continuation of any applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice. Payment of these amounts to the Distributor is not
contingent upon the adoption or continuation of any Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with
5
<PAGE>
respect to the Fund's classes and/or series of Shares as described in each of
the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees with respect to the relevant class and/or series of Shares to be
paid by the Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer agreements with the
Distributor. So long as a Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. ALLOCATION OF EXPENSES
The Fund shall bear all costs and expenses of the continuous offering
of its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of qualification of
the Shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5.4 hereof. As set forth in Section 8
above, the Fund shall also bear the expenses it assumes pursuant to any Plan, so
long as such Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact
6
<PAGE>
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
director, trustee or controlling person unless a court of competent jurisdiction
shall determine in a final decision on the merits, that the person to be
indemnified was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or trustees who
are neither "interested persons" of the Fund as defined in Section 2(a)(19) of
the Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such controlling
person as aforesaid is expressly conditioned upon the Fund's being promptly
notified of any action brought against the Distributor, its officers or
directors or trustees, or any such controlling person, such notification to be
given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and Directors or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to make such information not misleading. The Distributor's agreement to
indemnify the Fund, its officers and Directors and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
7
<PAGE>
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, and (b) by the vote of a majority of those Directors who are
not parties to this Agreement or interested persons of any such parties and who
have no direct or indirect financial interest in this Agreement or in the
operation of any of the Fund's Plans or in any agreement related thereto
(Independent Directors), cast in person at a meeting called for the purpose of
voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment
of any penalty, by a majority of the Independent Directors or by vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b) by the vote of a majority of the Independent
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. SEPARATE AGREEMENT AS TO CLASSES AND/OR SERIES
The amendment or termination of this Agreement with respect to any
class and/or series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or series unless explicitly so
provided.
Section 14. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities Incorporated
By:
------------------------
Prudential Emerging Growth Fund, Inc.
By:
------------------------
9
<PAGE>
EXHIBIT 6(b)
<PAGE>
PRUDENTIAL SECURITIES INCORPORATED
One Seaport Plaza
New York, NY 10292
Form of
SELECTED DEALER AGREEMENT
,1996
[Dealer Name]
[Address]
Dear [Name]:
As the distributor of shares of certain investment companies presently or
hereafter managed by Prudential Mutual Fund Management, Inc. ("PMF"), shares of
which companies are distributed by us at their respective net asset values plus
sales charges, if any, pursuant to Distribution Agreements between us and each
such company (collectively, the "Funds"), we invite you to participate as a
selected dealer in the distribution of shares of any and all of the Funds as set
forth at Schedule A, upon the following terms and conditions:
1. You are to offer and sell such shares only at the public offering
prices which shall be currently in effect, in accordance with the terms of the
then current prospectus of each Fund. You shall not have authority to act as
agent for any Fund, for us, or for any other dealer in any respect. All orders
are subject to acceptance by us and become effective only upon confirmation by
us.
2. On each sale of shares by you, the total sales charges or discounts, if
any, to selected dealers shall be as stated in Schedule A, which Schedule A may
be amended from time to time in accordance with the provisions of Section 16.
Schedule A may be provided in written or electronic format.
Such sales charges or discounts to selected dealers are subject to
reductions under a variety of circumstances as described in the then current
prospectus of the Funds. To obtain these reductions, we must be notified when
the sale takes place which would qualify for the reduced charge. There is no
sales charge or discount to selected dealers on the reinvestment of dividends or
capital gains reinvestment or on shares acquired in exchange for shares of
another Fund. Subject to other provisions of this Agreement, from time to time
an account servicing fee shall be paid
<PAGE>
to selected dealer with respect to shares of the Funds. Such account servicing
fees should be payable only on accounts for which you provide personal service
and/or maintenance services for shareholder accounts.
3. As a selected dealer, you are hereby authorized to: (i) place purchase
orders on behalf of your customers or for your own BONA FIDE investment through
us for shares of the Funds which orders are to be effected subject to the
applicable compensation provisions set forth in each Fund's then current
prospectus; and (ii) tender shares directly to the Fund or its agent for
redemption subject to the applicable terms and conditions set forth in each
Fund's then current prospectus.
4. Redemption of shares will be made at the net asset value of such shares
in accordance with the then current prospectus of each Fund.
5. You represent and warrant that:
(a) You are a registered broker dealer with the Securities and
Exchange Commission ("SEC") and a member of the National Association of
Securities Dealers, Inc. ("NASD") and that you agree to abide by the
Conduct Rules of the NASD;
(b) You are a corporation duly organized and existing and in good
standing under the laws of the state, commonwealth or other jurisdiction in
which you are organized and that you are duly registered or exempt from
registration as a broker-dealer in all fifty states, Puerto Rico and the
District of Columbia and that you will not offer shares of any Fund for
sale in any state where we have informed you in writing that they are not
qualified for sale under the Blue Sky laws and regulations of such states
or where you are not qualified to act as a broker-dealer;
(c) You are empowered under applicable laws and by your charter and
by-laws to enter into and perform this Agreement and that there are no
impediments, prior or existing, regulatory, self-regulatory,
administrative, civil or criminal matters affecting your ability to perform
under this Agreement;
(d) All requisite corporate proceedings have been taken to authorize
you to enter into and perform this Agreement;
(e) You agree to keep in force appropriate broker's blanket bond
insurance policies covering any and all acts of your employees, officers
and directors adequate to reasonably
2
<PAGE>
protect and indemnify Prudential Securities Incorporated ("PSI") and the
Funds against any loss which any party may suffer or incur, directly or
indirectly, as a result of any action by you, or your employees, officers
and directors; and
(f) You agree to maintain the required net capital as warranted by
the rules and regulations of the SEC, NASD and other regulatory
authorities.
6. We represent and warrant that:
(a) We are a registered broker dealer with the SEC and a member of
the NASD and that we agree to abide by the Conduct Rules of the NASD;
(b) We are a corporation duly organized and existing and in good
standing under the laws of the state, commonwealth or other jurisdiction in
which we are organized and that we are duly registered or exempt from
registration as a broker-dealer in all fifty states, Puerto Rico and the
District of Columbia;
(c) We are empowered under applicable laws and by our charter and
by-laws to enter into and perform this Agreement and that there are no
impediments, prior or existing, regulatory, self-regulatory,
administrative, civil or criminal matters affecting our ability to perform
under this Agreement;
(d) All requisite corporate procedures have been taken to authorize
us to enter into and perform this Agreement;
(e) We agree to maintain the required net capital as warranted by the
rules and regulations of the SEC, NASD and other regulatory authorities.
7. This Agreement is in all respects subject to Rule 2830 of the Conduct
Rules of the NASD which shall control any provisions to the contrary in this
Agreement.
8. You agree:
(a) To purchase shares on behalf of your customers only through us or
to sell shares only on behalf of your customers.
(b) To purchase shares on behalf of your customers through us only
for the purpose of covering purchase orders already received from
your customers or for your own BONA FIDE investment.
3
<PAGE>
(c) That you will not purchase from, or sell any shares on behalf of,
investors at prices lower than the redemption prices then quoted
by the Funds, subject to any applicable charges as stated in such
Fund's then current prospectus. You shall, however, be permitted
to sell shares for the account of their record owners to the Fund
at the redemption prices currently established for such shares
and may charge the owner a fair commission for handling the
transaction.
(d) That you will not delay placing customers' orders for shares.
(e) That if any shares confirmed to you hereunder are redeemed by the
Funds within seven business days after such confirmation of your
original order, you shall forthwith refund to us the full sales
charge or discount, if any, allowed to you on such sales. We
shall forthwith pay to the Fund our share of the sales charge, if
any, on the original sale, and shall also pay to the Fund the
refund from you as herein provided. Termination or cancellation
of this Agreement shall not relieve you or us from the
requirements of this subparagraph.
(f) To (i) be liable for, (ii) hold PSI, the Funds, PMF and
Prudential Mutual Fund Services, Inc. ("PMFS") (the Funds'
transfer agent), our officers, directors and employees harmless
from and (iii) indemnify us and them from any loss, liability,
cost and expense arising from: (A) any statements or
representations that you or your employees make concerning the
Funds that are inconsistent with either the pertinent Fund's
current prospectus and statement of additional information or any
other written material we have provided to you, (B) any sale of
shares of a Fund in any state, any U.S. territory or the District
of Columbia where the Fund's shares were not properly registered
or qualified, when we have indicated to you that the Fund's
shares were not properly registered and qualified; and (C) any of
your actions relating to the processing of purchase, exchange and
redemption orders and the servicing of shareholder accounts.
Your obligation under this paragraph shall survive the
termination of this Agreement.
4
<PAGE>
(g) As a condition of the receipt of an account servicing fee as
described at Sections 2 and 13, you agree to provide to
shareholders of the Funds personal service and/or maintenance
services with respect to shareholder accounts.
9. We shall not accept from you any conditional orders for shares.
Delivery of certificates, if any, for shares purchased shall be made by the Fund
only against receipt of the purchase price, subject to deduction for sales
charge or discount reallowed to you and our portion of the sales charge on such
sale, if any. If payment for the shares purchased is not received within the
time customary for such payments, the sale may be canceled forthwith without any
responsibility or liability on our part or on the part of the Funds (in which
case you will be responsible for any loss, including loss of profit, suffered by
the Funds resulting from your failure to make payments as aforesaid), or, at our
option, we may sell on your behalf the shares ordered back to the Funds (in
which case we may hold you responsible for any loss, including loss of profit,
suffered by us resulting from your failure to make payment as aforesaid).
10. Shares of the Funds are qualified for sale or exempt from
qualification in the states and territories or districts listed in Schedule B,
which Schedule B may be amended from time to time. Schedule B may be provided
in written or electronic format. Qualification of shares of the Funds in the
various states, including the filing in any state of further notices respecting
such shares, is our responsibility or the responsibility of the Funds.
11. You will not offer or sell any of the shares except under
circumstances that will result in compliance with the applicable Federal and
state securities laws (subject to our obligations set forth in Section 10) and
in connection with sales and offers to sell shares you will furnish to each
person to whom any such sale or offer is made a copy of the applicable then
current prospectus. All out-of-pocket expenses incurred in connection with your
activities under this Agreement will be borne by you.
12. We shall be under no obligation to each other except for obligations
expressly assumed by us herein. Nothing herein contained, however, shall be
deemed to be a condition, stipulation or provision binding any persons acquiring
any security to waive compliance with any provision of the Securities Act of
1933, or of the Rules and Regulations of the SEC or to relieve the parties
hereto from any liability arising under the Securities Act of 1933.
5
<PAGE>
13. Notwithstanding anything to the contrary contained herein, from time
to time during the term of this Agreement PSI may (but is not hereby obliged to)
make payments to you, in consideration of your furnishing personal service
and/or maintenance services for shareholder accounts with respect to the Funds.
Any such payments made pursuant to this Section 13 shall be subject to the
following terms and conditions:
(a) Any such payments shall be in such amounts as we may from time to
time advise you in writing but in any event not in excess of the
amounts permitted, if any, by each Fund's Plan of Distribution in
effect. Any such payments shall be in addition to the selling
concession, if any, allowed to you pursuant to this Agreement.
(b) The provisions of this Section 13 relate to each Plan of
Distribution adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act").
(c) The provisions of this Section 13 and any other related
provisions applicable to a Fund shall remain in effect for not
more than a year and thereafter for successive annual periods
only so long as such continuance is specifically approved at
least annually in conformity with Rule 12b-1 under the Investment
Company Act ("Act"). The provisions of this Section 13 shall
automatically terminate with respect to a particular Plan in the
event of the assignment (as defined by the Act) of this Agreement
or in the event such Plan terminates or is not continued or in
the event this Agreement terminates or ceases to remain in
effect. In addition, the provisions of this Section 13 may be
terminated at any time, without penalty, by either party with
respect to any particular Plan on not more than 60 days' nor less
than 30 days' written notice delivered or mailed by registered
mail, postage prepaid, to the other party.
14. You and your agents and employees are not authorized to make any
written or oral representations concerning the Funds or their shares except
those contained in or consistent with the prospectus and such other written
materials we provide relating to the Funds. We shall supply prospectuses,
reasonable quantities of supplemental sales literature, sales bulletins, and
additional information as issued and/or requested by you. You agree not to use
other advertising or sales material relating to the Funds,
6
<PAGE>
unless forwarded to PSI's Marketing Review Department for review prior to use
and approved in writing by us in advance of such use. Any printed information
furnished by us other than the then current prospectuses and SAIs for the Funds,
periodic reports and proxy solicitation materials is our sole responsibility and
not the responsibility of the Funds, and you agree that the Funds shall have no
liability or responsibility to you in these respects unless expressly assumed in
connection therewith.
15. Either party to this Agreement may terminate the Agreement by giving
30 days written notice to the other. Such notice shall be deemed to have been
given on the date on which it was either delivered personally to the other party
or any officer or partner thereof, or was mailed postpaid or delivered to a
telegraph office for transmission to the other party at his or its address as
shown below. This Agreement may be amended by us at any time and your placing
of an order after the effective date of any such amendment shall constitute your
acceptance thereof.
16. This Agreement shall be construed in accordance with the laws of the
State of New York and shall be binding upon both parties hereto when signed by
us and accepted by you in the space provided below.
17. If a dispute arises between you and us with respect to this Agreement
which you and we are unable to resolve ourselves, it shall be settled by
arbitration in accordance with the then-existing NASD Code of Arbitration
Procedures ("NASD Code"). The parties agree, that to the extent permitted by
the NASD Code, the arbitrator(s) shall be selected from the securities industry.
7
<PAGE>
18. This Agreement is in full force and effect as of the date hereof and
supersedes any previous agreements relating to the subject matter hereof.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
By: ________________________
Title: ________________________
Firm Name: ____________________________
Address: ___________________________
City: ________________________ State: ___________ Zip Code: _________________
ACCEPTED BY (signature) ________________________________________________________
Name (print) ___________________________________ Title _________________________
Date _____________________________________ 199__ Phone # ______________________
Please return two signed copies of this Agreement
(one of which will be signed above by us and
thereafter returned to you) in the accompanying
return envelope to:
Prudential Securities Incorporated
Attention: Phyllis J. Berman
National Sales Division
Three Gateway Center
100 Mulberry Street, 8th Floor
Newark, NJ 07102-4077
8
<PAGE>
EXHIBIT 8
<PAGE>
FORM OF
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held by It . . . . . . . . . -1-
2. Duties to the Custodian with Respect to Property of The Fund Held
By the Custodian in the United States . . . . . . . . . . . . . . . . . -2-
2.1 Holding Securities. . . . . . . . . . . . . . . . . . . . . . . . -2-
2.2 Delivery of Securities. . . . . . . . . . . . . . . . . . . . . . -2-
2.3 Registration of Securities. . . . . . . . . . . . . . . . . . . . -6-
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.5 Availability of Federal Funds . . . . . . . . . . . . . . . . . . -7-
2.6 Collection of Income. . . . . . . . . . . . . . . . . . . . . . . -8-
2.7 Payment of Fund Monies. . . . . . . . . . . . . . . . . . . . . . -8-
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . .-11-
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . .-11-
2.10 Deposit of Securities in Securities Systems . . . . . . . . . . .-11-
2.10A Fund Assets Held in the Custodian's Direct Paper System . . . . .-13-
2.11 Segregated Account. . . . . . . . . . . . . . . . . . . . . . . .-14-
2.12 Ownership Certificates for Tax Purposes . . . . . . . . . . . . .-15-
2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-16-
2.14 Communications Relating to Fund Portfolio Securities. . . . . . .-16-
2.15 Reports to Fund by Independent Public Accountants . . . . . . . .-16-
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States. . . . . . . . . . . . . . . . . . . . . .-17-
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . . . . .-17-
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . . . . .-17-
3.3 Foreign Securities Depositories . . . . . . . . . . . . . . . . .-18-
3.4 Segregation of Securities . . . . . . . . . . . . . . . . . . . .-18-
3.5 Agreements with Foreign Banking Institutions. . . . . . . . . . .-18-
3.6 Access of Independent Accountants of the Fund . . . . . . . . . .-19-
3.7 Reports by Custodian. . . . . . . . . . . . . . . . . . . . . . .-19-
3.9 Liability of Foreign Sub-Custodians . . . . . . . . . . . . . . .-20-
3.10 Liability of Custodian. . . . . . . . . . . . . . . . . . . . . .-21-
3.11 Reimbursements for Advances . . . . . . . . . . . . . . . . . . .-21-
3.12 Monitoring Responsibilities . . . . . . . . . . . . . . . . . . .-22-
3.13 Branches of U.S. Banks. . . . . . . . . . . . . . . . . . . . . .-22-
4. Payments for Repurchases or Redemptions and Sales of Shares
of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-23-
-i-
<PAGE>
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . .-24-
6. Actions Permitted without Express Authority . . . . . . . . . . . . . .-24-
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . .-25-
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income . . . . . . . . . . . . .-26-
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
10. Opinion of Fund's Independent Accountant. . . . . . . . . . . . . . . .-27-
11. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . .-27-
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . .-27-
13. Effective Period, Termination and Amendment . . . . . . . . . . . . . .-29-
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . .-30-
15. Interpretative and Additional Provisions. . . . . . . . . . . . . . . .-32-
16. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . .-32-
17. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .-32-
18. The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-32-
19. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . .-33-
-ii-
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian", and each Fund
listed on Appendix A which evidences its agreement to be bound hereby by
executing a copy of this Contract (each such Fund individually hereinafter
referred to as the "Fund").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/ Declaration of Trust. The Fund agrees to deliver to the
Custodian all securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, ("Shares") of
the Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors/ Trustees of the Fund, and provided that the Custodian shall
have the same responsibility or liability to the Fund on account of any actions
<PAGE>
or omissions of any sub-custodian so employed as any such sub-custodian has to
the Custodian, provided that the Custodian agreement with any such domestic sub-
custodian shall impose on such sub-custodian responsibilities and liabilities
similar in nature and scope to those imposed by this Agreement with respect to
the functions to be performed by such sub-custodian. The Custodian may employ
as sub-custodians for the Fund's securities and other assets the foreign banking
institutions and foreign securities depositories designated in Schedule "A"
hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN IN THE UNITED STATES.
2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of the Fund all non-cash property, to be held by it in
the United States, including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of Treasury, collectively referred to herein
as "Securities System" and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book-entry
system account ("Direct Paper System") only upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, and
only in the following cases:
-2-
<PAGE>
(1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; PROVIDED that, in any such case, the new
securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such
-3-
<PAGE>
securities prior to receiving payment for such securities
except as may arise from the Custodian's own negligence or
willful misconduct;
(8) For exchange or conversation pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered
to the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
(10) For delivery in connection with any loans of securities made by
the Fund, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral
is to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Fund prior to the receipt
of such collateral;
-4-
<PAGE>
(11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, BUT ONLY
against receipt of amounts borrowed;
(12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating
to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
-5-
<PAGE>
(15) For any other proper business purpose, BUT ONLY upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper business purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominees of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, UNLESS the
Fund has authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment adviser as
the Fund, or in the name or nominee name of any agent appointed pursuant to
Section 2.9 or in the name or nominee name of any sub-custodian appointed
pursuant to Article 1. All securities accepted by the Custodian on behalf of
the Fund under the terms of this Contract shall be in "street name" or other
good delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best efforts to
timely collect income due the Fund on such securities and to notify the Fund on
a best efforts basis of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject only
to draft or order by the Custodian
-6-
<PAGE>
acting pursuant to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; PROVIDED, however, that
every such bank or trust company shall be qualified to act as a custodian under
the Investment Company Act of 1940 and that each such bank or trust company and
the funds to be approved by vote of a majority of the Board of
Directors/Trustees of the Fund. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by the Custodian only in
that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the
Fund and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified times
agreed upon from time to time by the Fund and the Custodian in the amount of
checks received in payment for Shares of the Fund which are deposited into the
Fund's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments with
respect to registered securities held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income, as
collected, to the Fund's custodian account. Without
-7-
<PAGE>
limiting the generality of the foregoing, the Custodian shall detach and present
for payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities held
hereunder. Income due the Fund on securities loaned pursuant to the provisions
of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will
have no duty or responsibility in connection therewith, other than to provide
the Fund with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which the
Fund is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
(1) Upon the purchase of securities held domestically, options,
futures contracts or options on futures contracts for the
account of the Fund but only (a) against the delivery of such
securities, or evidence of title to such options, futures
contracts or options on futures contracts, to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions
set forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance
-8-
<PAGE>
with the conditions set forth in Section 2.10A; (d) in the case
of repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund or (e) for transfer to
a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined
in Article 5;
(2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
(3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;
(4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
-9-
<PAGE>
(5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of Board of Directors/Trustees or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of securities for the account of the Fund is made by
the Custodian in advance of receipt of the securities purchased in the absence
of specific written instructions from the Fund to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; PROVIDED,
-10-
<PAGE>
however, that the appointment of any agent shall not relieve the Custodian of
its responsibilities or liabilities hereunder.
2.10 DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
(2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities belonging
to the Fund;
(3) The Custodian shall pay for domestic securities purchased for
the account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (i.) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer domestic
securities sold
-11-
<PAGE>
for the account of the Fund upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices
from the Securities System of transfers of domestic securities
for the account of the Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to the
Fund at its request. Upon request, the Custodian shall furnish
the Fund confirmation of each transfer to or from the account
of the Fund in the form of a written advice or notice and shall
furnish promptly to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of the Fund.
(4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or
from failure of the Custodian or any such agent to enforce
effectively such
-12-
<PAGE>
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against
the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to
the extent that the Fund has not been made whole for any such
loss or damage.
2.10A FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The
Custodian may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
(1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions;
(2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
(3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
(4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of
-13-
<PAGE>
an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Fund;
(5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the Direct Paper System for the account of the
Fund;
(6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time;
2.11 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash, government securities or liquid,
high-grade debt obligations in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures
-14-
<PAGE>
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and (iv)
for other proper corporate purposes, BUT ONLY, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors/Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
domestic securities of the Fund held by it and in connection with transfers of
such securities.
2.13 PROXIES. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without indication
of the manner in which such proxies are to be voted, and shall promptly deliver
to the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities held domestically and expirations of rights in
connection therewith and notices of exercise of call and put options written by
the Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the
-15-
<PAGE>
Custodian shall transmit promptly to the Fund all written information received
by the Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange offer.
If the Fund desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Fund shall notify the Custodian at
least three business days prior to the date of which the Custodian is to take
such action.
2.15 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian
shall provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities, futures contracts
and options on futures contracts, including securities deposited and/or
maintained in a Securities System, relating to the services provided by the
Custodian under this Contract; such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE
OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes
and instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories designated on Schedule
A hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions", as
defined in Section 5 of this Contract, together with a certified resolution of
the Fund's Board of Directors/Trustees, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act
-16-
<PAGE>
as sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct
the Custodian to cease the employment of any one or more such sub-custodians for
maintaining custody of the Fund's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and
other assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash and cash equivalents in such
amounts as the Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions.
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.5 hereof.
3.4 SEGREGATION OF SECURITIES. The Custodian shall identify on its books
as belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian. Each agreement pursuant to which the Custodian employs a
foreign banking institution shall require that such institution establish a
custody account for the Custodian on behalf of the Fund and physically segregate
in that account, securities and other assets of the Fund, and, in the event that
such institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to the Custodian,
as agent for the Fund, the securities so deposited.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall be substantially in the form set forth in
Exhibit I hereto and shall provide that (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind
-17-
<PAGE>
in favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) beneficial
ownership of the Fund's assets will be freely transferable without the payment
of money or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund; (d) officers
of or auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical possession of
such securities.
-18-
<PAGE>
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT
(a) Except as otherwise provided in paragraph (b) of this Section
3.8, the provision of Sections 2.2 and 2.7 of this Contract shall apply, in
their entirety to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be effected in
accordance with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefore (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to
which the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care in
the performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to any
claims against a foreign banking institution as a consequence of any such
loss, damage, cost, expense,
-19-
<PAGE>
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts
or omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless of
whether assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage,
cost, expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the sub-
custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except such loss
as may result from (a) political risk (including, but not limited to, exchange
control restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses (excluding
a bankruptcy or insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses under circumstances
where the Custodian and State Street London Ltd. have exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in the event that the
Custodian or its nominees shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as amy arise from its or its nominee's own
negligent action, negligent failure to act or wilful misconduct, any property at
any time held for the account of the Fund shall be security
-20-
<PAGE>
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually
to the Fund, during the month of June, information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will promptly inform the
Fund in the event that the Custodian learns of a material adverse change in the
financial condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the subject
of an exemptive order from the Securities and Exchange Commission is notified by
such foreign sub-custodian that there appears to be a substantial likelihood
that its shareholders equity will decline below $200 million (U.S. dollars or
the equivalent thereof) or that its shareholders equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
3.13 BRANCHES OF U.S. BANKS
(a) Except as otherwise set forth in this Contract, the provisions
of Article 3 shall not apply where the custody of the Fund assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
-21-
<PAGE>
(b) Cash held for the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction of
the Custodian, State Street London Ltd. or both.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation/Declaration of Trust and any
applicable votes of the Board of Directors/Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who have delivered
to the Transfer Agent a request for redemption or repurchase of their Shares.
In connection with the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of the
Fund, the Custodian shall honor checks drawn on the Custodian by a holder of
Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
-22-
<PAGE>
5. PROPER INSTRUCTIONS.
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. It is understood and agreed that the Board of
Directors/Directors/Trustees has authorized (i) Prudential Mutual Fund
Management, Inc., as Manager of the Fund, and (ii) The Prudential Investment
Corporation (or Prudential-Bache Securities Inc.), as Subadviser to the Fund, to
deliver proper instructions with respect to all matters for which proper
instructions are required by this Article 5. The Custodian may rely upon the
certificate of an officer of the Manager or Subadviser, as the case may be, with
respect to the person or persons authorized on behalf of the Manager and
Subadviser, respectively, to sign, initial or give proper instructions for the
purpose of this Article 5. Proper Instructions may include communications
effected directly between electro-mechanical or electronic devices provided that
the Fund and the Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.
The Custodian may in its discretion, without express authority from the
Fund:
-23-
<PAGE>
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to the Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as otherwise
directed by the Board of Directors/Trustees of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/ Trustees pursuant to the Articles of
Incorporation/Declaration of Trust as described in such vote, and such vote may
be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
-24-
<PAGE>
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an office of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund and
held by the Custodian and shall, when requested to do so by the Fund and for
such
-25-
<PAGE>
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, Form N-2 (in the case
of a closed end Fund) and Form N-SAR or other periodic reports to the Securities
and Exchange Commission and with respect to any other requirements of such
Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
-26-
<PAGE>
or omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into between the
Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or wilful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the
-27-
<PAGE>
Fund fail to repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of the Fund assets to the extent necessary
to obtain reimbursement provided, however that, prior to disposing of Fund
assets hereunder, the Custodian shall give the Fund notice of its intention to
dispose of assets identifying such assets and the Fund shall have one business
day from receipt of such notice to notify the Custodian if the Fund wishes the
Custodian to dispose of Fund assets of equal value other than those identified
in such notice.
13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; PROVIDED, however that the Custodian
shall not act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees of the Fund has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors/Trustees has reviewed the use
by the Fund of such Securities System, as required in each case by Rule 17f-4
under the Investment Company Act of 1940, as amended and that the Custodian
shall not act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has approved the initial use of the Direct Paper System and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors/Trustees has reviewed the use by the Fund of the
Direct Paper System; PROVIDED FURTHER, however, that the Fund shall not amend or
-28-
<PAGE>
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Articles of Incorporation/Declaration of
Trust, and further, provided, that the Fund may at any time by action of its
Board of Directors/Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date
-29-
<PAGE>
when such termination shall become effective, then the Custodian shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract and to transfer to an account of such successor custodian all of
the Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
15. INTERPRETATIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretative or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/ Declaration of Trust of the
-30-
<PAGE>
Fund. No interpretative or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
16. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
18. THE PARTIES
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual Fund
and the Custodian. With respect to any Fund listed on Appendix A which is
organized as a Massachusetts Business Trust, references to Board of Directors
and Articles of Incorporation shall be deemed a reference to Board of
Directors/Trustees and Articles of Incorporation/Declaration of Trust
respectively and reference to shares of capital stock shall be deemed a
reference to shares of beneficial interest.
19. LIMITATION OF LIABILITY
Each Fund listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Articles of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
-31-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the dates set forth on Appendix A.
ATTEST STATE STREET BANK AND TRUST COMPANY
By:
- ------------------------------ ------------------------------------
Assistant Secretary
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
By:
- ------------------------------ ------------------------------------
Secretary
-32
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
Fund Name Execution Date of
- --------- Date Declaration of Trust
---- --------------------
(if applicable)
<S> <C> <C>
Command Government Fud July 1, 1990 August 19, 1981
Command Money Fund July 1, 1990 June 5, 1981
Command Tax-Free Fund July 1, 1990 June 5, 1981
The BlackRock Government Income Trust August 30, 1991 June 13, 1991
The Global Total Return Fund, Inc. September 5, 1990
(formerly The Global Yield Fund, Inc.)
Prudential California Municipal Fund August 1, 1990 May 18, 1984
Prudential Distressed Securities Fund, Inc. February 8, 1996
Prudential Diversified Bond Fund, Inc. January 3, 1995
Prudential Emerging Growth Fund, Inc. , 1996
Prudential Equity Fund, Inc. August 1, 1990
Prudential World Fund, Inc. June 7, 1990
(formerly Prudential Global Fund,
Inc.)
Prudential Global Limited Maturity October 25, 1990
Fund, Inc.
(formerly Prudential Short-Term
Global Income Fund, Inc.)
Prudential Government Income Fund, Inc. July 31, 1990
(formerly Prudential Government Plus
Fund)
Prudential Government Securities Trust July 26, 1990 September 22, 1981
Prudential Small Companies Fund, Inc. July 26, 1990
(formerly Prudential Growth
Opportunity Fund, Inc.)
Prudential High Yield Fund, Inc. July 26, 1990
Prudential Jennison Series Fund, Inc. October 27, 1995
Prudential MoneyMart Assets, Inc. July 25, 1990
Prudential Mortgage Income Fund, Inc. August 1, 1990
(formerly Prudential GNMA Fund, Inc.)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Fund Name Execution Date of
- --------- Date Declaration of Trust
---- --------------------
(if applicable)
<S> <C> <C>
Prudential Multi-Sector Fund, Inc. June 1, 1990
Prudential Municipal Series Fund August 1, 1990 May 18, 1984
Prudential National Municipals Fund, Inc. July 26, 1990
Prudential Pacific Growth Fund, Inc. July 16, 1992
Prudential Special Money Market Fund, Inc. January 12, 1990
Prudential Structured Maturity Fund, Inc. July 25, 1989
Prudential Tax-Free Money Fund, Inc. July 26, 1990
Prudential Utility Fund, Inc. June 6, 1990
The Global Government Plus Fund, Inc. January 16, 1996
The Target Portfolio Trust November 9, 1992 July 29, 1992
</TABLE>
2
<PAGE>
EXHIBIT 9
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL EMERGING GROWTH FUND, INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Agent . . . . . . . . . . 1
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 5
Article 3 Representations and Warranties of the Agent . . . . . . . . . 5
Article 4 Representations of Warranties of the Fund . . . . . . . . . . 6
Article 5 Duty of Care and Indemnification. . . . . . . . . . . . . . . 7
Article 6 Documents and Covenants of the Fund and the Agent . . . . . . 10
Article 7 Termination of Agreement. . . . . . . . . . . . . . . . . . . 12
Article 8 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . . . . . . . 13
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 14
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 14
Article 13 Merger of Agreement . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the __th day of ________, 199_ by and between
Prudential Emerging Growth Fund, Inc., a Maryland corporation, having its
principal office and place of business at One Seaport Plaza, New York, New York
10292 (the Fund), and PRUDENTIAL MUTUAL FUND SERVICES, INC., a New Jersey
corporation, having its principal office and place of business at Raritan Plaza
One, Edison, New Jersey 08837 (the Agent or PMFS).
WHEREAS, the Fund desires to appoint PMFS as its transfer agent,
dividend disbursing agent and shareholder servicing agent in connection with
certain other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF PMFS
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints PMFS to act as, and PMFS agrees
to act as, the transfer agent for the authorized and issued shares of the common
stock of each series of the Fund, $.001 par value (Shares), dividend disbursing
agent and shareholder servicing agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of the Fund or any
series thereof (Shareholders) and set out in the currently effective prospectus
and statement of additional
<PAGE>
information (prospectus) of the Fund, including without limitation any periodic
investment plan or periodic withdrawal program.
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate documentation therefor to
the Custodian of the Fund authorized pursuant to the Articles of Incorporation
of the Fund (the Custodian);
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and
its Shareholders as to
3
<PAGE>
the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 (1934 Act)
a record of the total number of Shares of the Fund which are authorized, based
upon data provided to it by the Fund, and issued and outstanding. PMFS shall
also provide to the Fund on a regular basis the total number of Shares which are
authorized, issued and outstanding and shall notify the Fund in case any
proposed issue of Shares by the Fund would result in an overissue. In case any
issue of Shares would result in an overissue, PMFS shall refuse to issue such
Shares and shall not countersign and issue any certificates requested for such
Shares. When recording the issuance of Shares, PMFS shall have no obligation to
take cognizance of any Blue Sky laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in
the above paragraph (a), PMFS shall: (i) perform all of the customary services
of a transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and distributions by
federal tax authorities for all Shareholders, preparing and mailing confirmation
forms and statements
4
<PAGE>
of account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders and providing Shareholder account information and
(ii) provide a system which will enable the Fund to monitor the total number of
Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing
those transactions and assets to be treated as exempt from Blue Sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of PMFS for the Fund's registration status under
the Blue Sky or securities laws of any State or other jurisdiction is solely
limited to the initial establishment of transactions subject to Blue Sky
compliance by the Fund and the reporting of such transactions to the Fund as
provided above and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be
established from time to time by agreement between the Fund and PMFS.
Article 2 FEES AND EXPENSES
2.01 For performance by PMFS pursuant to this Agreement, the Fund
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such
5
<PAGE>
fees and out-of-pocket expenses and advances identified under Section 2.02 below
may be changed from time to time subject to mutual written agreement between the
Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the
Fund agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by
PMFS for the items set out in Schedule A attached hereto. In addition, any
other expenses incurred by PMFS at the request or with the consent of the Fund
will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to PMFS by the Fund
upon request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of New Jersey and it is duly qualified to carry on its
business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission (SEC) as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
6
<PAGE>
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the 1940 Act).
4.05 A registration statement under the Securities Act of 1933 (the
1933 Act) is currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Fund shall
indemnify and hold PMFS harmless from and against, any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
7
<PAGE>
(a) All actions of PMFS or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors
of information, records and documents which (i) are received by PMFS or its
agents or subcontractors and furnished to it by or on behalf of the Fund, and
(ii) have been prepared and/or maintained by the Fund or any other person or
firm on behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities or Blue Sky
laws of any State or other jurisdiction that such Shares be registered in such
State or other jurisdiction or in violation of any stop order or other
determination or ruling by any federal agency or any State or other jurisdiction
with respect to the offer or sale of such Shares in such State or other
jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by PMFS as a result of PMFS' lack of good faith, negligence
or willful misconduct.
8
<PAGE>
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for
9
<PAGE>
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of PMFS and the execution and delivery of
this Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws
of the Fund and all amendments thereto;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act and the 1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Directors, with a certificate of the Secretary of
the Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder
10
<PAGE>
accounts and/or relating to any plan program or service offered or to be offered
by the Fund; and
(f) Such other certificates, documents or opinions as the Agent
deems to be appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 PMFS shall prepare and keep records relating to the services
to be performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
except as may be required by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder
11
<PAGE>
records of the Fund, PMFS will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such inspection. PMFS
reserves the right, however, to exhibit the Shareholder records to any person
whenever it is advised by its counsel that it may be held liable for the failure
to exhibit the Shareholder records to such person.
Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and other
materials will be borne by the Fund. Additionally, PMFS reserves the right to
charge for any other reasonable fees and expenses associated with such
termination.
Article 8 ASSIGNMENT
8.01 Except as provided in Section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent
by the Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to: (i) Prudential Securities Incorporated (Prudential Securities), a
registered broker-dealer, (ii) The Prudential
12
<PAGE>
Insurance Company of America (Prudential), (iii) Pruco Securities Corporation, a
registered broker-dealer, (iv) any Prudential Securities or Prudential
subsidiary or affiliate duly registered as a broker-dealer and/or a transfer
agent pursuant to the 1934 Act or (vi) any other Prudential Securities or
Prudential affiliate or subsidiary; provided, however, that PMFS shall be as
fully responsible to the Fund for the acts and omissions of any agent or
subcontractor as it is for its own acts and omissions.
Article 9 AFFILIATIONS
9.01 PMFS may now or hereafter, without the consent of or notice to
the Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential Securities
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the directors, officers,
employees, agents and Shareholders of the Fund, and the directors, officers,
employees, agents and shareholders of the Fund's investment adviser and/or
distributor, are or may be interested in the Agent as directors, officers,
employees, agents, shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Agent may be interested in the Fund as
directors, officers, employees, agents, Shareholders or otherwise, or in the
investment adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
13
<PAGE>
Article 10 AMENDMENT
10.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
Article 11 APPLICABLE LAW
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 MISCELLANEOUS
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less.
12.02 In the event that any check or other order for payment of
money on the account of any Shareholder or new investor is returned unpaid for
any reason, PMFS will (a) give prompt notification to the Fund's distributor
(Distributor) of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the
14
<PAGE>
Distributor may instruct PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential Emerging Growth Fund, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza One
Edison, NJ 08837
Attention: President
Article 13 MERGER OF AGREEMENT
13.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
PRUDENTIAL EMERGING GROWTH FUND, INC.
BY:
------------------------------
Robert F. Gunia
Vice President
ATTEST:
- ------------------------------
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
BY:
------------------------------
Vincent Marra
ATTEST:
- ------------------------------
16
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL EMERGING GROWTH FUND, INC.
GENERAL - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. In addition, there is a one time
set-up charge per account for manually established accounts and a monthly
charge for inactive zero balance accounts. The effective period of this fee
schedule is , 1996 through December 31, 1997 and shall continue
thereafter from year to year, unless otherwise amended.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Annual Maintenance Per Account Fee $ 9.00
OTHER CHARGES
New Account Set-up Fee for Manually $ 2.00
Established Accounts
Monthly Inactive Zero Balance Account Fee $ .20
OUT-OF-POCKET EXPENSES - Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
PAYMENT - An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL EMERGING PRUDENTIAL MUTUAL FUND
GROWTH FUND, INC. SERVICES, INC.
By:
--------------- -------------
Robert F. Gunia Vincent Marra
Vice President President
Dated: , 1996
<PAGE>
SCHEDULE B
<PAGE>
GARDNER, CARTON & DOUGLAS
Suite 3400 - Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
(312) 644-3000
Telecopier: (312) 644-3381
October 24, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential Emerging Growth Fund, Inc.
Indefinite Number of Shares of Common Stock,
$.001 par value
--------------------------------------------
Ladies and Gentlemen:
As counsel for Prudential Emerging Growth Fund, Inc., a Maryland
corporation (the "Fund"), we have examined the proceedings taken and being taken
for the registration by the Fund on Form N-1A of an indefinite number of shares
of its Common Stock, $.001 par value.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the above-
described shares of Common Stock will be, if and when issued by the Fund in the
manner and upon the terms set forth in said Form N-1A, validly authorized and
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the Fund's
Registration Statement on Form N-1A, as it may be amended.
Very truly yours,
/s/ Gardner, Carton & Douglas
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
October 25, 1996, relating to the statement of assets and liabilities at
October 21, 1996 of Prudential Emerging Growth Fund, Inc., which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, NY
October 25, 1996
<PAGE>
EXHIBIT 13
<PAGE>
PURCHASE AGREEMENT
Prudential Emerging Growth Fund, Inc. (the Fund), an open-end, diversified
management investment company and a Maryland Corporation, and Prudential Mutual
Fund Management LLP, a New York limited liability company (PMF), intending to be
legally bound, hereby agree as follows:
1. In order to provide the Fund with its initial capital, the Fund hereby
sells to PMF, and PMF hereby purchases, 10,000 shares of common stock (the
Shares) of the Fund. The Shares are apportioned as follows: 2,500 Shares of
Class A, 2,500 Shares of Class B, 2,500 Shares of Class C and 2,500 Shares of
Class Z, each at the net asset value of $10.00 per share. The Fund hereby
acknowledges receipt from PMF of funds in the amount of $100,000 in full payment
for the Shares.
2. PMF represents and warrants to the Fund that the Shares are being
acquired for investment and not with a view to distribution thereof and that PMF
has no present intention to redeem and dispose of any of the Shares.
3. PMF hereby agrees that it will not redeem any of the Shares except in
direct proportion to the amortization of organizational expenses by the Fund.
In the event that the Fund liquidates before deferred organizational expenses
are fully amortized, then the Shares shall bear their proportionate share of
such unamortized organizational expenses.
IN WITNESS THEREOF, the parties have executed this agreement as of the 21st
day of October, 1996.
Prudential Emerging Growth Fund, Inc.
By___________________________________
Prudential Mutual Fund Management, Inc.
By___________________________________
<PAGE>
EXHIBIT 15(a)
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
Distribution and Service Plan
(CLASS A SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Emerging Growth Fund, Inc. (the Fund) and by Prudential
Securities Inc., the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor,
as compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and
<PAGE>
its shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network, including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class A shares of the Fund are referred to herein as
"Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum
2
<PAGE>
of the average daily net assets of the Class A shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions and trailer commissions paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class A shares of the Fund, including sales
commissions, trailer commissions paid to, or on account of,
agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class A
shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the
4
<PAGE>
Distributor and to broker-dealers and financial institutions which have selected
dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of
5
<PAGE>
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the Plan.
8. RULE 12b-1 DIRECTORS
While the Plan is in effect, the selection and nomination of the Directors
shall be committed to the discretion of the Rule 12b-1 Directors.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated:
6
<PAGE>
EXHIBIT 15(b)
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
Distribution and Service Plan
(CLASS B SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Emerging Growth Fund, Inc. (the Fund) and by Prudential
Securities Incorporated (Prudential Securities), the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class B shares issued by the
Fund (Class B shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class B shares.
A majority of the Board of Directors of the Fund including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures under this Plan by the
Fund for Distribution Activities (defined below) are primarily intended to
result in the sale of Class B shares of the Fund within the meaning of paragraph
(a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
<PAGE>
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class B shares of the Fund are referred to herein as
"Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall
2
<PAGE>
pay such amounts monthly or at such other intervals as the Board of Directors
may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall
be subject to the limitations of Rule 2830 of the NASD Rules.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among classes will be
subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
3
<PAGE>
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
B shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class B shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
4
<PAGE>
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule
5
<PAGE>
12b-1 Directors by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. RULE 12b-1 DIRECTORS
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated:
<PAGE>
EXHIBIT 15(c)
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
Distribution and Service Plan
(CLASS C SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Emerging Growth Fund, Inc. (the Fund) and by Prudential
Securities Incorporated (Prudential Securities), the Fund's distributor (the
Distributor) and will become effective upon the approval of the Plan by the sole
shareholder of the Class C shares.
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by the Fund
(Class C shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class C shares.
A majority of the Board of Directors of the Fund, including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures under this Plan by the
Fund for Distribution Activities (defined below) are primarily intended to
result in the sale of Class C shares of the
<PAGE>
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class C shares of the Fund are referred to herein as
"Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall
2
<PAGE>
calculate and accrue daily amounts payable by the Class C shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall
be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among classes will be
subject to the review of the Board of Directors. Payments hereunder will be
applied to distribution expenses in the order in which they are incurred, unless
otherwise determined by the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class C shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions
4
<PAGE>
and account servicing fees to be paid by the Distributor to account executives
of the Distributor and to broker-dealers and other financial institutions which
have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the
5
<PAGE>
Investment Company Act) of the Class C shares of the Fund. All material
amendments of the Plan shall be approved by a majority of the Board of Directors
of the Fund and a majority of the Rule 12b-1 Directors by votes cast in person
at a meeting called for the purpose of voting on the Plan.
8. RULE 12b-1 DIRECTORS
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated:
6
<PAGE>
EXHIBIT 18
<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
(the Fund)
PLAN PURSUANT TO RULE 18f-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares. Any material
amendment to this plan is subject to prior approval of the Board of
Directors/Trustees, including a majority of the independent Directors/Trustees.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a high initial sales charge
and a distribution and/or service fee pursuant to Rule 12b-1
under the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1%
per annum of the average daily net assets of the class. The
initial sales charge is waived or reduced for certain
eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial sales charge
but are subject to a high contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee of not to exceed 1% per
annum of the average daily net assets of the class. The
contingent deferred sales charge is waived for certain
eligible investors. Class B shares automatically convert to
Class A shares approximately seven years after purchase.
CLASS C SHARES: Class C shares are not subject to an initial sales charge
but are subject to a low contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee not to exceed 1% per annum
of the average daily net assets of the class.
CLASS Z SHARES: Class Z shares are not subject to either an initial or
contingent deferred sales charge nor are they subject to any
Rule 12b-1 fee.
<PAGE>
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the net asset value of that class in relation to the net asset
value of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class may be different from that paid by another
class because of Rule 12b-1 fees and other expenses borne exclusively by
that class.
EXCHANGE PRIVILEGE
Each class of shares is generally exchangeable for the same class of shares
(or the class of shares with similar characteristics), if any, of the other
Prudential Mutual Funds (subject to certain minimum investment
requirements) at relative net asset value without the imposition of any
sales charge.
Class B and Class C shares (which are not subject to a contingent deferred
sales charge) of shareholders who qualify to purchase Class A shares at net
asset value will be automatically exchanged for Class A shares on a
quarterly basis, unless the shareholder elects otherwise.
CONVERSION FEATURES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be
effected at relative net asset value without the imposition of any
additional sales charge.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
<PAGE>
B. On an ongoing basis, the Directors/Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors/Trustees, including a majority of the
independent Directors/Trustees, shall take such action as is reasonably
necessary to eliminate any such conflicts that may develop. Prudential
Mutual Fund Management, Inc., the Fund's Manager, will be responsible for
reporting any potential or existing conflicts to the Directors/Trustees.
C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Dated: October 12, 1996
