<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999
REGISTRATION NO. 333-43491
811-08587
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2 /X/
(Check appropriate box or boxes)
------------------------
PRUDENTIAL 20/20 FOCUS FUND
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7525
MARGUERITE E.H. MORRISON, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(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.
It is proposed that this filing will become effective
(check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Title of Securities Being Registered...Shares of Beneficial Interest, $.001
par value per share.
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<PAGE>
FUND TYPE:
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Stock
INVESTMENT OBJECTIVE:
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Long-term growth of capital
PRUDENTIAL
20/20 FOCUS
[LOGO]
FUND
- ------------------
PROSPECTUS: APRIL , 1999
As with all mutual funds, the Securities
and Exchange Commission has not
approved or disapproved the Fund's
shares, nor has the SEC determined
that this prospectus is complete or
accurate. It is a criminal offense to
state otherwise. [LOGO]
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Fees and Expenses
5 HOW THE FUND INVESTS
5 Investment Objective and Policies
7 Other Investments
8 Derivative Strategies
8 Additional Strategies
9 Investment Risks
12 HOW THE FUND IS MANAGED
12 Manager
12 Investment Advisers
12 Portfolio Managers
13 Distributor
13 Year 2000 Readiness Disclosure
15 FUND DISTRIBUTIONS AND TAX ISSUES
15 Distributions
16 Tax Issues
17 If You Sell or Exchange Your Shares
19 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
19 How to Buy Shares
27 How to Sell Your Shares
31 How to Exchange Your Shares
33 FINANCIAL HIGHLIGHTS
33 Class A and Class B Shares
34 Class C and Class Z Shares
35 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
</TABLE>
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PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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This section highlights key information about the PRUDENTIAL 20/20 FOCUS FUND,
which we refer to as "the Fund." Additional information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM GROWTH OF CAPITAL. This means we seek
investments whose price will increase over several years. We normally invest at
least 80% of total assets in up to 40 equity-related securities of U.S.
companies that are selected by the Fund's two investment advisers as having
strong capital appreciation potential. Each adviser may select up to 20
securities. The Fund's strategy is to combine the efforts of two portfolio
managers with different styles and to invest in the favorite stock selection
ideas of each manager. Each portfolio manager builds a portfolio with stocks in
which he has the highest confidence.
Equity-related securities include common stocks, preferred stock and
convertible securities. We can invest up to 20% of the Fund's assets in foreign
securities. We also may use derivatives. While we make every effort to achieve
our objective, we can't guarantee success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in equity-related securities, there is the risk that the price
of a particular stock we own could go down, or the value of the equity markets
or a sector of them could go down. Stock markets are volatile. The Fund's
holdings can vary significantly from broad market indices, and performance of
the Fund can deviate from the performance of such indices.
Since the Fund invests in foreign securities, there are additional risks.
Foreign markets are often more volatile than U.S. markets. Changes in currency
exchange rates can reduce or increase market performance.
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WE'RE GROWTH INVESTORS.
In deciding which stocks to buy, we use what is known as a growth investment
style for half of the portfolio's assets. This means we invest in stocks we
believe could experience superior sales or earnings growth.
WE'RE ALSO VALUE INVESTORS.
In deciding which stocks to buy for the other half of the portfolio, we use what
is known as a value investment style. That is, we invest in stocks that we
believe are undervalued, given the company's earnings, assets, cash flow and
dividends.
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1
<PAGE>
RISK/RETURN SUMMARY
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The Fund is non-diversified, meaning we can invest more than 5% of our
assets in the securities of any one issuer. Investing in a non-diversified
mutual fund, particularly a fund investing in up to only 40 equity-related
securities, involves greater risk than investing in a diversified fund because a
loss resulting from the decline in the value of one security may represent a
greater portion of the total assets of a non-diversified fund.
Some of our investment strategies--such as using derivatives and
leverage--also involve risk. The Fund may use risk management techniques to try
to preserve assets or enhance return. These strategies may present above-average
risks. Derivatives may not fully offset the underlying positions and this could
result in losses to the Fund that would not otherwise have occurred. Leverage
risk is the risk associated with investments or trading strategies that
relatively small market movements may result in large changes in the value of an
investment.
Like any mutual fund, an investment in the Fund could lose value, and you
could lose money. For more detailed information about the risks associated with
the Fund, see "Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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2 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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FEES AND EXPENSES
This table shows the sales charges, fees and expenses for each share class of
the Fund--Class A, B, C and Z. Each share class has different sales
charges--known as loads--and expenses, but represents an investment in the same
fund. Class Z shares are available only to a limited group of investors. For
more information about which share class may be right for you, see "How to Buy,
Sell and Exchange Shares of the Fund."
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
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CLASS A CLASS B CLASS C CLASS Z
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<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering
price) 5% None 1% None
Maximum deferred sales
charge (load) (as a
percentage of the lower of
original purchase price or
sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load)
imposed on reinvested
dividends and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
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CLASS A CLASS B CLASS C CLASS Z
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<S> <C> <C> <C> <C>
Management fees . % . % . % . %
+ Distribution and service
(12b-1) fees .30%(4) 1.00% 1.00% None
+ Other expenses % % % %
= Total annual Fund
operating expenses %(4) % % %
- Fee waiver or expense
reimbursement
= NET EXPENSES
</TABLE>
1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY
1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR.
CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER
PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
PURCHASE.
4 FOR THE FISCAL YEAR ENDING JANUARY 31, 2000, THE DISTRIBUTOR OF THE FUND
HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE FEES FOR
CLASS A SHARES TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A
SHARES.
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3
<PAGE>
RISK/RETURN SUMMARY
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EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. After the first year, the example
does not take into consideration the Distributor's agreement to reduce its
distribution and service fees for Class A shares. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
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1 YR 3 YRS 5 YRS 10 YRS
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<S> <C> <C> <C> <C>
Class A shares
Class B shares
Class C shares
Class Z shares
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
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1 YR 3 YRS 5 YRS 10 YRS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
Class C shares
Class Z shares
</TABLE>
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4 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is LONG-TERM GROWTH OF CAPITAL. This means we
seek investments whose price will increase over several years. While we make
every effort to achieve our objective, we can't guarantee success.
In pursuing our objective, we normally invest at least 80% of the Fund's
total assets in up to 40 equity-related securities of U.S. companies that are
selected by the Fund's two investment advisers as having strong capital
appreciation potential. The Fund's strategy is to combine the efforts of two
portfolio managers with different styles and to invest in the favorite stock
selection ideas of each manager. Each portfolio manager builds a portfolio with
stocks in which he has the highest confidence.
Each portfolio manager may select up to 20 securities. In connection with
the execution of purchases and sales, each manager may hold more than 20
securities temporarily.
Equity-related securities include common stocks, nonconvertible preferred
stock, warrants and rights that can be exercised to obtain stock, investments in
various types of business ventures, including partnerships and joint ventures,
and similar securities. We may also buy convertible securities. These are
securities--like bonds, corporate notes and preferred stock--that we can convert
into the company's common stock or some other equity security. We may buy common
stock of companies of every size--small, medium and large capitalization. The
Fund intends to be fully invested, holding less than 5% of its total assets in
cash under normal market conditions. Generally, we consider selling a security
when it has increased in price to the point where it is no longer underpriced in
the opinion of the investment adviser.
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OUR GROWTH STYLE
Our growth portfolio manager, Spiros Segalas, invests in mid-sized and large
companies experiencing some or all of the following: high sales growth, high
unit growth, high or improving returns on assets and equity and a strong balance
sheet. Such companies generally trade at high prices relative to their current
earnings.
OUR VALUE STYLE Our value portfolio manager, Thomas R. Jackson, invests in
medium and large sized companies selling at a price that is low relative to the
companies' earnings, assets, cash flow and dividends.
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5
<PAGE>
HOW THE FUND INVESTS
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FOREIGN SECURITIES
We may invest up to 20% of the Fund's total assets in foreign securities,
including stocks and other equity-related securities and money market
instruments and other fixed-income securities of foreign issuers. We do not
consider American Depositary Receipts (ADRs) and other similar receipts or
shares to be foreign securities for purposes of this limitation.
DIVISION OF ASSETS
Because each investment adviser selects portfolio securities independently, it
is possible that a security held by one portfolio segment may also be held by
the other portfolio segment of the Fund or that the two advisers may
simultaneously favor the same industry segment. The Manager will monitor the
overall portfolio to ensure that any such overlaps do not create an unintended
industry concentration.
In order to maintain an approximately equal division of all of the Fund's
assets between the two investment advisers, the Manager will divide all daily
cash inflows ( that is, purchases and reinvested distributions) and outflows
(that is, redemptions and expense items) between the two advisers. Each
segment's assets will be rebalanced periodically to take account of market
fluctuations in order to maintain the approximately equal allocation. As a
consequence, each segment will allocate assets from the better performing of the
two investment advisers to the other. Reallocations may result in additional
transaction costs to the extent that sales of securities as part of these
reallocations result in higher portfolio turnover. In addition, if one
investment adviser buys a security as the other adviser sells it, the net
position of the Fund in the security may be approximately the same as it would
have been with a single investment adviser and no such sale and purchase, but
the Fund will have incurred additional transaction costs and other expenses. The
Manager will consider these costs in determining the allocation and reallocation
of assets.
For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Fund, Its Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover page
of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Fund can change
investment policies that are not fundamental.
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6 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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OTHER INVESTMENTS
In addition to the above principal strategies, we may also make the following
investments to try to increase the Fund's returns or protect its assets if
market conditions warrant.
TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in money market instruments.
Money market instruments include the commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks, nonconvertible debt securities (corporate and government),
short-term obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities, repurchase agreements and cash (foreign
currencies or U.S. dollars). Investing heavily in these securities limits our
ability to achieve capital appreciation but can help to preserve the Fund's
assets when the equity markets are unstable.
The Fund may also temporarily hold cash or 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 subject to the policy of
normally investing at least 80% of the Fund's assets in equity-related
securities.
REAL ESTATE INVESTMENT TRUSTS
We may invest in the securities of real estate investment trusts known as REITs.
REITs are like corporations, except that they do not pay income taxes if they
meet certain IRS requirements. However, while REITs themselves do not pay income
taxes, the distributions they make to investors are taxable. REITs invest
primarily in real estate and distribute almost all of their income--most of
which comes from rents, mortgages and gains on sales of property--to
shareholders.
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.
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7
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
SHORT SALES
The Fund may use short sales, where it sells a security it does not own, with
the expectation of a decline in the market value of that security. To complete
the transaction, the Fund will borrow the security to make delivery to the
buyer. The Fund must replace the security borrowed by purchasing it at the
market price at the time of replacement. The price at that time may be more or
less than the price at which the Fund sold the security. The Fund is required to
pay the lender any dividends or interest accrued. To borrow the security, the
Fund may pay a premium which would increase the cost of the security sold.
REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns or
protect its assets. We cannot guarantee that these strategies will work, that
the instruments necessary to implement these strategies will be available or
that the Fund will not lose money. Derivatives--such as futures, options and
options on futures--involve costs and can be volatile. With derivatives, an
investment adviser tries to predict whether the underlying investment--a
security, market index, currency, interest rate or some other benchmark--will go
up or down at some future date. We may use derivatives to try to reduce risk or
to increase return consistent with the Fund's overall investment objective. The
investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument. Any
derivatives we use may not match the Fund's underlying holdings. For more
information about these strategies, see the SAI, "Description of the Fund, Its
Investments and Risks--Risk Management and Return Enhancement Strategies."
ADDITIONAL STRATEGIES
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 33 1/3% of the value of its total assets; and
HOLDS ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in
illiquid
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8 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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securities, including securities with legal or contractual restrictions on
resale, those without a readily available market and repurchase agreements with
maturities longer than seven days). The Fund is "NON-DIVERSIFIED," meaning it
can invest more than 5% of its assets in the securities of any one issuer. The
Fund is subject to certain other investment restrictions that are fundamental
policies, which means they cannot be changed without shareholder approval. For
more information about these restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indices, performance of the Fund can deviate from performance of the indices.
This chart outlines the key risks and potential rewards of the Fund's principal
and other investments. See, too, "Description of the Fund, Its Investments and
Risks" in the SAI.
INVESTMENT TYPE
<TABLE>
<CAPTION>
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% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
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<S> <C> <C>
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EQUITY-RELATED SECURITIES -- Individual stocks -- Historically, stocks
AT LEAST 80% could lose value have outperformed
-- The equity markets other investments
could go down, over the long term
resulting in a -- Generally, economic
decline in value of growth means higher
the Fund's invest- corporate profits,
ments which leads to an
-- Changes in economic increase in stock
or political prices, known as
conditions, both capital
domestic and in- appreciation
terna-
tional, may result
in a decline in
value of the Fund's
investments
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</TABLE>
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9
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
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<S> <C> <C>
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FOREIGN SECURITIES -- Foreign markets, economies -- Investors can participate
UP TO 20% and political systems may in the growth of foreign
not be as stable as in the markets and companies
U.S. operating in those mar-
-- May be less liquid than kets
U.S. stocks and bonds -- Changing values of foreign
-- Differences in foreign currencies
laws, accounting stan- -- Opportunities for diversi-
dards and public fication
information, custody and
settlement practices
-- Currency risk--changing
values of foreign
currencies
-- Year 2000 conversion may be
more of a problem for some
foreign issuers
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DERIVATIVES -- Derivatives such as fu- -- The Fund could make money
PERCENTAGE VARIES tures and options may not and protect against losses
fully offset the un- if the investment analysis
derlying positions and proves correct
this could result in -- Derivatives that involve
losses to the Fund that leverage could generate
would not have otherwise substantial gains at low
occurred* cost
-- Derivatives used for risk -- One way to manage the
management may not have Fund's risk/return bal-
the intended effects and ance is to lock in the
may result in losses or value of an investment
missed opportunities ahead of time
-- The other party to a
derivatives contract could
default
-- Derivatives that involve
leverage could magnify
losses
-- Certain types of deriva-
tives involve costs to the
Fund that can reduce
returns
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</TABLE>
* AN OPTION IS THE RIGHT TO BUY OR SELL SECURITIES IN EXCHANGE FOR A PREMIUM. A
FUTURES CONTRACT IS AN AGREEMENT TO BUY OR SELL A SET QUANTITY OF AN
UNDERLYING PRODUCT AT A FUTURE DATE, OR TO MAKE OR RECEIVE A CASH PAYMENT
BASED ON THE VALUE OF A SECURITIES INDEX.
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10 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
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<S> <C> <C>
- ------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (REITs) -- Performance depends on the -- Real estate holdings can
UP TO 25% strength of real estate generate good returns from
markets, REIT management rents, rising market
and property management, values, etc.
which can be affected by -- Greater diversification
many factors, including than direct ownership
national and regional
economic conditions
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U.S. GOVERNMENT SECURITIES -- Not all are insured or -- May preserve the Fund's
UP TO 35% guaranteed by the assets
government but only by the -- Principal and interest may
issuing agency be guaranteed by the
-- Limits potential for cap- issuing government
ital appreciation
-- Interest rate risk--the
value of most debt obli-
gations will fall when
interest rates rise; the
longer its maturity, the
more its value typically
falls. It can lead to
price volatility
- ------------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to value -- May offer a more at-
UP TO 15% OF NET ASSETS precisely tractive yield or
-- May be difficult to sell at potential for growth than
the time or price desired more widely traded
securities
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MONEY MARKET INSTRUMENTS -- Limits potential for cap- -- May preserve the Fund's
UP TO 100% ON A TEMPORARY BASIS ital appreciation assets
-- Credit risk--the default of
an issuer would leave the
Fund with unpaid interest
or principal. The lower
the quality, the higher
the potential volatility
-- Market risk--the risk that
the market value of an
investment may move up or
down, sometimes rapidly or
unpredictably. Market risk
may affect an industry, a
sector or the market as a
whole
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</TABLE>
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11
<PAGE>
HOW THE FUND IS MANAGED
- -------------------------------------
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM is paid annual
management fees of .75 of 1% of the Fund's average net assets.
As of February 28, 1999, PIFM served as the Manager to all of the
Prudential Mutual Funds, and as Manager or administrator to 22 closed-end
investment companies, with aggregate assets of approximately $ billion.
INVESTMENT ADVISERS
The Prudential Investment Corporation, called Prudential Investments, and
Jennison Associates LLC (Jennison) are the Fund's investment advisers.
Prudential Investments' address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102 and Jennison's address is 466 Lexington Avenue, New York, New York
10017. PIFM has responsibility for all investment advisory services and
supervises Prudential Investments and Jennison. PIFM reimburses Prudential
Investments for its reasonable costs and expenses and pays Jennison at an annual
rate of .30 of 1% of the average daily net assets of the portion of the Fund
that it manages up to $300 million and .25 of 1% of the average daily net assets
in excess of $300 million. As of December 31, 1998, Jennison managed
approximately $46.4 billion in assets.
PORTFOLIO MANAGERS
THOMAS R. JACKSON, a Managing Director of Prudential Investments, has managed
approximately 50% of the Fund since it commenced operations in July 1998. Mr.
Jackson joined Prudential Investments in 1990 and has over 30 years of
professional equity investment management experience.
As a value investor, Mr. Jackson seeks companies selling at a discount from
their perceived true worth. He selects stocks at prices which in his view are
temporarily low relative to the company's earnings, assets, cash flow and
dividends.
SPIROS "SIG" SEGALAS is the portfolio manager for the portion of the assets
advised by Jennison, and has served as such since the Fund commenced operations.
Mr. Segalas has been in the investment business for over 35 years
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12 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
and has been the portfolio manager for the Harbor Capital Appreciation Fund
since May 1990. He is a founding member and Director, President and Chief
Investment Officer of Jennison.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" table.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive and have
received since early 1998 satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner or that there will be no adverse impact on the Fund. Moreover, the Fund
at this time has not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Fund, may confront year 2000 compliance issues which, if material and
- --------------------------------------------------------------------------------
13
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
not resolved, could have an adverse impact on securities markets and/or a
specific issuer's performance and result in a decline in the value of the
securities held by the Fund.
- -------------------------------------------------------------------
14 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- -------------------------------------
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA) or some other qualified tax-deferred plan or account.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues you
should be aware of, but is not meant to be tax advice. For tax advice, please
speak with your tax adviser.
DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders,
typically semi-annually. For example, if the Fund owns ACME Corp. stock and the
stock pays a dividend, the Fund will pay out a portion of this dividend to its
shareholders, assuming the Fund's income is more than its costs and expenses.
The dividends you receive from the Fund will be taxed as ordinary income,
whether or not they are reinvested in the Fund.
The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year--which are generated when the Fund sells its assets for a
profit. For example, if the Fund bought 100 shares of ACME Corp. stock for a
total of $1,000 and more than one year later sold the shares for a total of
$1,500, the Fund has net long-term capital gains of $500, which it will pass on
to shareholders (assuming the Fund's total gains are greater than any losses it
may have). Capital gains are taxed differently depending on how long the Fund
holds the security--if a security is held more than one year before it is sold,
LONG-TERM capital gains are taxed at the rate of 20%, but if the security is
held one year or less, SHORT-TERM capital gains are taxed at ordinary income
rates of up to 39.6%. Different rates apply to corporate shareholders.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a broker you will receive
a credit to your account. Either way, the distributions may be subject to taxes,
unless your shares are held in a qualified tax-deferred plan or account. For
more information about automatic reinvestment and other shareholder services,
see "Step 4: Additional Shareholder Services" in the next section.
- --------------------------------------------------------------------------------
15
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do this, we
will withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well, since you bought shares one day and
soon thereafter received a distribution. That is not so because when dividends
are paid out, the value of each share of the Fund decreases by the amount of the
dividend and the market changes (if any) to reflect the payout. The distribution
you receive makes up for the decrease in share value. However, the timing of
your purchase does mean that part of your investment came back to you as taxable
income.
- -------------------------------------------------------------------
16 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
QUALIFIED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of Prudential Mutual Funds that are
suitable for retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified tax-deferred
plan or account. The amount of tax you pay depends on how long you owned your
shares. If you sell shares of the Fund for a loss, you may have a capital loss,
which you may use to offset certain capital gains you have.
[CHART]
CAPITAL GAIN
+$ (taxes owed)
RECEIPTS
FROM SALE OR
CAPITAL LOSS
-$ (offset against gain)
EXCHANGING your shares of the Fund for the shares of another Prudential
Mutual Fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial advisor should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
- --------------------------------------------------------------------------------
17
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the IRS. For more
information about the automatic conversion of Class B shares, see "Class B
Shares Convert to Class A Shares After Approximately Seven Years" in the next
section.
- -------------------------------------------------------------------
18 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- -------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the Fund's sale of
its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge, or CDSC), but the operating expenses each year are higher
than the Class A share expenses. With Class C shares, you pay a 1% front-end
sales charge and a 1% CDSC if you sell within 18 months of purchase, but the
operating expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
-- The amount of your investment
-- The length of time you expect to hold the shares and the impact of
varying distribution fees
-- The different sales charges that apply to each share class-- Class
A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
- --------------------------------------------------------------------------------
19
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
-- Whether you qualify for any reduction or waiver of sales charges
-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
-- Whether you qualify to purchase Class Z shares
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum purchase amount(1) $1,000 $1,000 $2,500 None
Minimum amount for subsequent $100 $100 $100 None
purchases(1)
Maximum initial sales charge 5% of the public None 1% of the public None
offering price offering price
Contingent Deferred Sales Charge None If sold 1% on sales made None
(CDSC)(2) during: within 18 months of
Year 1 5% purchase(2)
Year 2 4%
Year 3 3%
Year 4 2%
Year 5/6 1%
Year 7 0%
Annual distribution and service .30 of 1% 1% 1% None
(12b-1) fees shown as a percentage of (.25 of 1%
average net assets(3) currently)
</TABLE>
1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN RETIREMENT AND
EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS FOR MINORS. THE MINIMUM
INITIAL AND SUBSEQUENT INVESTMENT FOR PURCHASES MADE THROUGH THE AUTOMATIC
INVESTMENT PLAN IS $50. FOR MORE INFORMATION, SEE "ADDITIONAL SHAREHOLDER
SERVICES--AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE "HOW TO
SELL YOUR SHARES-- CONTINGENT DEFERRED SALES CHARGE (CDSC)." CLASS C SHARES
BOUGHT BEFORE NOVEMBER 2, 1998 HAVE A 1% CDSC IF SOLD WITHIN ONE YEAR.
3 THESE DISTRIBUTION FEES ARE PAID FROM THE FUND'S ASSETS ON A CONTINUOUS
BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF YOUR INVESTMENT AND
MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES CHARGES. THE SERVICE FEE
FOR CLASS A, CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION FEE
FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING THE .25 OF 1% SERVICE
FEE) AND IS .75 OF 1% FOR CLASS B AND CLASS C SHARES.
- -------------------------------------------------------------------
20 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales charge
by increasing the amount of your investment. This table shows you how the
sales charge decreases as the amount of your investment increases.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
- -----------------------------------------------------------------------------------
<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 million and above* None None None
</TABLE>
* IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.
To satisfy the purchase amounts above, you can:
-- invest with an eligible group of related investors;
-- buy the Class A shares of two or more Prudential Mutual Funds at the
same time;
-- use your RIGHTS OF ACCUMULATION, which allow you to combine the value
of Prudential Mutual Fund shares you already own with the value of
the shares you are purchasing for purposes of determining the
applicable sales charge (note: you must notify the Transfer Agent if
you qualify for Rights of Accumulation); or
-- sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares
in the Fund and other Prudential Mutual Funds within 13 months.
BENEFIT PLANS. Benefit Plans can avoid Class A's initial sales charge if the
Benefit Plan has existing assets of at least $1 million invested in shares of
Prudential Mutual Funds (excluding money market funds other than those acquired
under the exchange privilege) or 250 eligible employees or participants. For
these purposes, a Benefit Plan is a pension, profit-sharing or other employee
benefit
- --------------------------------------------------------------------------------
21
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
plan qualified under Section 401 of the Internal Revenue Code, a deferred
compensation or annuity plan under Sections 403(b) and 457 of the Internal
Revenue Code, a "rabbi" trust or a nonqualified deferred compensation plan
sponsored by an employer that has a tax-qualified benefit plan with Prudential.
Class A shares may also be purchased without a sales charge by participants who
are repaying loans from Benefit Plans where Prudential (or its affiliates)
provides administrative or recordkeeping services, sponsors the product or
provides account services.
Certain Prudential retirement programs--such as PruArray Association Benefit
Plans and PruArray Savings Programs--may also be exempt from Class A's sales
charge. For more information, see the SAI or contact your financial adviser. In
addition, waivers are available to investors in certain programs sponsored by
brokers, investment advisers and financial planners who have agreements with
Prudential Investments Advisory Group relating to:
-- Mutual fund "wrap" or asset allocation programs where the sponsor
places Fund trades and charges its clients a management, consulting
or other fee for its services; and
-- Mutual fund "supermarket" programs where the sponsor links its
customers' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
OTHER TYPES OF INVESTORS. Other investors pay no sales charge, including certain
officers, employees or agents of Prudential and its affiliates, Prudential
Mutual Funds, the subadvisers of the Prudential Mutual Funds and clients of
brokers that have entered into a selected dealer agreement with the Distributor.
To qualify for a reduction or waiver of the sales charge, you must notify the
Transfer Agent or your broker at the time of purchase. For more information, see
the SAI, "Purchase, Redemption and Pricing of Fund Shares--Reduction and Waiver
of Initial Sales Charge--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Benefit Plans (as defined above) may purchase Class C shares
without paying an initial sales charge. Class C shares may also be purchased
without an initial sales charge by participants who are repaying loans from
Benefit Plans where Prudential (or its affiliates) provides administrative or
recordkeeping services, sponsors the product or provides account services.
- -------------------------------------------------------------------
22 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived for
purchases of Class C shares by both qualified and nonqualified retirement and
deferred compensation plans participating in a PruArray Plan and other plans if
Prudential also provides administrative or recordkeeping services.
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must:
-- purchase your shares through an account at Prudential Securities,
-- purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation, or
-- purchase your shares through another broker.
This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers appropriate.
QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
-- Any Benefit Plan as defined above, and certain nonqualified plans,
provided the Benefit Plan--in combination with other plans sponsored
by the same employer or group of related employers-- has at least $50
million in defined contribution assets
-- Participants in any fee-based program or trust program sponsored by
Prudential or an affiliate which includes mutual funds as investment
options and the Fund as an available option
-- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available option
-- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and, as of September 20,
1996,
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
were either Class Z shareholders of the Prudential Mutual Funds or
executed a letter of intent to purchase Class Z shares of the
Prudential Mutual Funds
-- Current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund)
-- Employees of Prudential and/or Prudential Securities who participate
in a Prudential-sponsored employee savings plan
-- Prudential with an investment of $10 million or more
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class Z shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of Class B shares converted if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV-- is
determined by a simple calculation--it's the total value of the
- -------------------------------------------------------------------
24 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
Fund (assets minus liabilities) divided by the total number of shares
outstanding. For example, if the value of the investments held by Fund XYZ
(minus its expenses) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund--or the NAV--is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report the
NAVs of most mutual funds, which allows investors to check the price of mutual
funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase, sell
or exchange Fund shares, or when changes in the value of the Fund's portfolio do
not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.
- -------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up, while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
- -------------------------------------------------------------------
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs, or SEP-IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs, 403(b)
plans, pension and profit-sharing plans), your financial adviser will help you
determine which retirement plan best meets your needs. Complete instructions
about how to establish and maintain your plan and how to open accounts for you
and your employees will be included in the retirement plan kit you receive in
the mail.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential Mutual Fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares
- -------------------------------------------------------------------
26 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
through Prudential. This insurance is subject to various restrictions and
charges and is not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York Time to
process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase shares by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $50,000 of shares, you want the check sent to
someone or some place that is not in our records or you are a business or a
trust and if you hold your shares directly with the Transfer Agent, you may have
to have the signature on your sell order guaranteed by a financial institution.
For more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares--Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase (one year for Class C shares purchased before November 2,
1998), you will have to pay a CDSC. To keep the CDSC as low as possible, we will
sell amounts representing shares in the following order:
-- Amounts representing shares you purchased with reinvested dividends
and distributions
-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998)
-- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted before in the "Share Class Comparison" chart, the CDSC for Class
B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth and 1% in the fifth and sixth years. The rate decreases on the first day
- -------------------------------------------------------------------
28 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase (one year for Class C shares purchased
before November 2, 1998). For both Class B and Class C shares, the CDSC is the
lesser of the original purchase price or the redemption proceeds. For purposes
of determining how long you've held your shares, all purchases during the month
are grouped together and considered to have been made on the last day of the
month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy (with rights of survivorship), provided the shares were
purchased before the death or disability
-- To provide for certain distributions--made without IRS penalty-- from
a tax-deferred retirement plan, IRA or Section 403(b) custodial
account
-- On certain sales from a Systematic Withdrawal Plan
For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charge--Class B Shares."
WAIVER OF THE CDSC--CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived for purchases of Class C
shares by both qualified and nonqualified retirement and deferred compensation
plans participating in a PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions from Benefit Plans sponsored by Prudential and its affiliates to
the extent that the redemption proceeds are invested in The Guaranteed
Investment Account (a group annuity insurance
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
product sponsored by Prudential), the Guaranteed Insulated Separate Account (a
separate account offered by Prudential) and shares of The Stable Value Fund (an
unaffiliated bank collective fund).
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which the
broker provides administrative or recordkeeping services.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate numbers of shares
to reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are special
- -------------------------------------------------------------------
30 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
distribution and income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer or
plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential Mutual Funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential Mutual Fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
B and Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. After an exchange, at redemption the
CDSC will be calculated from the first day of the month after initial purchase,
excluding any time shares were held in a money market fund. We may change the
terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX: 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange-- and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding period for CDSC
liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When in our opinion such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled account. The Fund may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Fund allows a market timer to trade Fund shares,
it may require the market timer to enter into a written agreement to follow
certain procedures and limitations.
- -------------------------------------------------------------------
32 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is
contained in the annual report, which you can receive at no charge.
CLASS A AND CLASS B SHARES
The financial highlights were audited by independent accountants, whose report
was unqualified.
CLASS A AND CLASS B SHARES (FISCAL PERIOD ENDED 1-31)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Class Class
A B
PER SHARE OPERATING PERFORMANCE 1999(1) 1999(1)
- ---------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
Net realized and unrealized gain on
investments and foreign currencies
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment income
Distributions from net realized capital
gains
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF PERIOD $ $
TOTAL RETURN(2) %
- ------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999(1) 1999(1)
- ------------------------------------------------
NET ASSETS, END OF PERIOD (000) $
Average net assets (000) $
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees %(3)
Expenses, excluding distribution fees %(3)
Net investment income %(3)
Portfolio turnover %
</TABLE>
1 INFORMATION IS SHOWN FOR THE PERIOD 7-1-98 (WHEN CLASS A AND CLASS B SHARES
WERE FIRST OFFERED) THROUGH 1-31-99.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
3 ANNUALIZED.
- --------------------------------------------------------------------------------
33
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS C AND CLASS Z SHARES
The financial highlights were audited by independent accountants, whose report
was unqualified.
CLASS C AND CLASS Z SHARES (FISCAL PERIOD ENDED 1-31)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Class Class
C Z
PER SHARE OPERATING PERFORMANCE 1999(1) 1999(1)
- ---------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ $
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)
Net realized and unrealized gain (loss)
on investments and foreign currencies
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment income
Distributions from net realized gains
Distributions in excess of net
investment income
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF PERIOD $ $
TOTAL RETURN(2) %
- ------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999(1) 1999(1)
- ------------------------------------------------
NET ASSETS, END OF PERIOD (000) $ $
AVERAGE NET ASSETS (000) $ $
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees %(3) %(3)
Expenses, excluding distribution fees %(3) %(3)
Net investment income %(3) %(3)
Portfolio turnover % %
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD 7-1-98 (WHEN CLASS C AND CLASS Z SHARES
WERE FIRST OFFERED) THROUGH 1-31-99.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
3 ANNUALIZED.
- -------------------------------------------------------------------
34 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Please read the prospectus carefully before you invest or
send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL
INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- --------------------------------------------------------------------------------
35
<PAGE>
- -------------------------------------
BOND FUNDS
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 HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
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
- -------------------------------------------------------------------
36 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FOR MORE INFORMATION:
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- ------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com
- --------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call (800) SEC-0330.)
Via the Internet:
http://www.sec.gov
- --------------------------------
CUSIP Numbers:
Class A: 743979-10-6
Class B: 743979-20-5
Class C: 743979-30-4
Class Z: 743979-40-3
Investment Company Act File No:
811-08587
MF183A [LOGO] Printed on Recycled Paper
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL , 1999
Prudential 20/20 Focus Fund (the Fund) is a non-diversified, open-end,
management investment company. The investment objective of the Fund is long-term
growth of capital. It seeks to achieve this objective by investing primarily in
up to 40 equity-related securities of U.S. companies that are selected by the
Fund's two investment advisers (up to 20 by each) as having strong capital
appreciation potential. There can be no assurance that the Fund's investment
objective will be achieved. See "Description of the Fund, Its Investments and
Risks."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, 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 the Fund dated April , 1999, a copy
of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Fund History...................................................................................................... B-2
Description of the Fund, Its Investments and Risks................................................................ B-2
Investment Restrictions........................................................................................... B-14
Management of the Fund............................................................................................ B-16
Control Persons and Principal Holders of Securities............................................................... B-19
Investment Advisory and Other Services............................................................................ B-19
Brokerage Allocation and Other Practices.......................................................................... B-23
Purchase, Redemption and Pricing of Fund Shares................................................................... B-26
Shareholder Investment Account.................................................................................... B-35
Net Asset Value................................................................................................... B-39
Taxes, Dividends and Distributions................................................................................ B-40
Performance Information........................................................................................... B-43
Financial Statements.............................................................................................. B-45
Report of Independent Accountants................................................................................. B-47
Appendix I--General Investment Information........................................................................ I-1
Appendix II--Historical Performance Data.......................................................................... II-1
Appendix III--Information Relating to Prudential.................................................................. III-1
</TABLE>
- --------------------------------------------------------------------------------
MF183B
<PAGE>
FUND HISTORY
Prudential 20/20 Focus Fund (the Fund) was established as a Delaware
business trust on December 18, 1997.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(a) CLASSIFICATION. The Fund is a non-diversified, open-end, management
investment company.
(b) AND (c) INVESTMENT STRATEGIES, POLICIES AND RISKS. The Fund's investment
objective is long-term growth of capital. Under normal market conditions, the
Fund intends to invest primarily (at least 80% of its total assets) in up to 40
equity-related securities of U.S. companies that are selected by the Fund's two
investment advisers (up to 20 by each) as having strong capital appreciation
potential. While the principal investment policies and strategies for seeking to
achieve this objective are described in the Fund's Prospectus, the Fund may from
time to time also use the securities, instruments, policies and strategies
described below in seeking to achieve its objective. The Fund may not be
successful in achieving its objective and you can lose money.
EQUITY-RELATED SECURITIES
Equity-related securities include common stocks as well as 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, American Depositary Receipts (ADRs), American
Depositary Shares (ADSs) and warrants and rights exercisable for equity
securities. Purchased options are not considered equity securities for the
Fund's purposes. The Fund will not invest more than 5% of its total assets in
unattached rights and warrants.
AMERICAN DEPOSITARY RECEIPTS AND AMERICAN DEPOSITARY SHARES. ADRs and ADSs
are U.S. dollar-denominated certificates or shares issued by a United States
bank or trust company and represent the right to receive securities of a foreign
issuer deposited in a domestic bank or foreign branch of a United States bank
and traded on a United States exchange or in the over-the-counter market.
Generally, ADRs and ADSs are in registered form. There are no fees imposed on
the purchase or sale of ADRs and ADSs when purchased from the issuing bank or
trust company in the initial underwriting, although the issuing bank or trust
company may impose charges for the collection of dividends and the conversion of
ADRs and ADSs into the underlying securities. Investment in ADRs and ADSs has
certain advantages over direct investment in the underlying foreign securities
since: (1) ADRs and ADSs are denominated in U.S. dollars, registered
domestically, easily transferable, and market quotations are readily available
for them; and (2) issuers whose securities are represented by ADRs and ADSs are
usually subject to auditing, accounting, and financial reporting standards
comparable to those of domestic issuers.
WARRANTS AND RIGHTS. A warrant gives the holder thereof the right to
subscribe by a specified date to a stated number of shares of stock of the
issuer at a fixed price. Warrants tend to be more volatile than the underlying
stock, and if, at a warrant's expiration date the stock is trading at a price
below the price set in the warrant, the warrant will expire worthless.
Conversely, if at the expiration date, the underlying stock is trading at a
price higher than the price set in the warrant, the Fund can acquire the stock
at a price below its market value. Rights are similar to warrants but normally
have a shorter duration and are distributed directly by the issuer to
shareholders. Rights and warrants have no voting rights, receive no dividends
and have no rights with respect to the corporation issuing them.
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
B-2
<PAGE>
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 U.S.
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 U.S. 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.
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 INVESTMENTS
The Fund is permitted to invest up to 20% of its total assets in securities
of foreign issuers, including money market instruments and debt and equity
securities. ADRs and ADSs are not considered foreign securities within this
limitation.
Investing in securities of foreign issuers and countries involves certain
considerations and risks which are not typically associated with investing in
securities of domestic companies. Foreign issuers are not generally subject to
uniform accounting, auditing and financial standards or other requirements
comparable to those applicable to U.S. companies. There may also be less
government supervision and regulation of foreign securities exchanges, brokers
and public companies than exist in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes
which may decrease the net return on such investments as compared to dividends
and interest paid to the Fund by domestic companies. There may be the
possibility of expropriations, confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect assets of the
Fund held in foreign countries.
There may be less publicly available information about foreign issuers and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than, for example, the
New York Stock Exchange and securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. companies. Brokerage
commissions and other transaction costs of foreign securities exchanges are
generally higher than in the United States.
In addition, 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 foreign currency forward 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.
Under the Internal Revenue Code of 1986, as amended (the Internal Revenue
Code), changes in an exchange rate which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities will result in foreign currency gains or
losses that increase or decrease an investment company's taxable income. The
exchange rates between the U.S. dollar and other currencies can be volatile and
are determined by such factors as supply and demand in the currency exchange
markets, international balances of payments, government intervention,
speculation and other economic and political conditions.
Foreign securities include securities of any foreign country an investment
adviser considers appropriate for investment by the Fund. Foreign securities may
also include securities of foreign issuers that are traded in U.S. dollars in
the United States although the underlying security is usually denominated in a
foreign currency.
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The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Foreign investment income may be
subject to foreign withholding or other government taxes that could reduce the
return to the Fund on those securities. Tax treaties between the United States
and certain foreign countries may, however, reduce or eliminate the amount of
foreign tax to which the Fund would be subject.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN EURO-DENOMINATED
SECURITIES
On January 1, 1999, 11 of the 15 member states of the European Monetary
Union introduced the "euro" as a common currency. During a three-year
transitional period, the euro will coexist with each participating state's
currency and, on July 1, 2002, the euro is expected to become the sole currency
of the participating states. During the transition period, the Fund will treat
the euro as a separate currency from that of any participating state.
The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.
The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indices, and other features may require the realization of a gain or loss by the
Fund as determined under existing tax law.
The Fund's Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Fund to process transactions
accurately and completely with minimal disruption to business activities and (2)
to obtain reasonable assurances that appropriate steps have been taken by the
Fund's other service providers to address the conversion. The Fund has not borne
any expense relating to these actions.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
The Fund also may engage in various portfolio strategies, including using
derivatives, to seek to reduce certain risks of its investments and to attempt
to enhance return. These strategies currently include the use of options on
stock indices and futures contracts and options on indices. The Fund's ability
to use these strategies may be limited by various factors, such as market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. The Fund, and thus its
investors, may lose money through any unsuccessful use of these strategies. If
new financial products and risk management techniques are developed, the Fund
may use them to the extent consistent with its investment objective and
policies.
OPTIONS ON SECURITIES INDICES
The Fund may purchase and write (that is, sell) put and call options on
financial indices that are traded on U.S. or foreign securities exchanges or in
the over-the-counter market to try to enhance return or to hedge the Fund's
portfolio. 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 a security 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 it intends to purchase. The Fund also may
purchase put and call options to offset previously written put and call options
of the same series.
A call option gives the purchaser, in exchange for a premium paid, the
right, for a specified period of time, to purchase the position 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 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 position 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 position 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
position at the exercise price. The Fund might, therefore, be obligated to
purchase the underlying position for more than its current market price.
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The Fund will write only "covered" options. A written option is covered if,
as long as the Fund is obligated under the option, it (1) owns an offsetting
position in the underlying securities that comprise the index or (2) segregates
cash or other liquid assets in an amount equal to or greater than its obligation
under the option. Under the first circumstance, the Fund's losses are limited
because it owns the underlying position; under the second circumstance, in the
case of a written call option, the Fund's losses are potentially unlimited.
There is no limitation on the amount of call options the Fund may write.
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 securities 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 an 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. The investment advisers currently use such techniques in
conjunction with the management of other mutual funds.
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: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (6) 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.
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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 Fund's policy 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. The
Fund will not purchase or sell any index option contract unless and until, in an
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 the Purchase and
Sale of Options on Stock Indices and Futures Contracts and Options on Futures
Contracts."
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 the
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 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.
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
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price. The Fund may purchase futures contracts on stock indices and foreign
currencies. The Fund may purchase futures contracts on debt securities,
including U.S. Government securities, aggregates of debt securities, stock
indices and foreign currencies.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures contracts are settled on a net cash payment basis rather than by the
sale and delivery of the securities or currency underlying the futures contract.
U.S. futures contracts have been designed by exchanges that have been designated
as "contract markets" by the Commodity Futures Trading Commission (the CFTC), an
agency of the U.S. Government, and must be executed through a futures commission
merchant (that is, a brokerage firm) which is a member of the relevant contract
market. Futures contracts trade on these contract markets and the exchange's
affiliated clearing organization guarantees performance of the contracts as
between the clearing members of the exchange.
At the time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment (initial margin). It is expected that
the initial margin on U.S. exchanges will vary from one-half of 1% to 4% of the
face value of the contract. Under certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Thereafter, the futures contract is
valued daily and the payment in cash of "variation margin" may be required, a
process known as "mark-to-the-market." Each day the Fund is required to provide
or is entitled to receive variation margin in an amount equal to any change in
the value of the contract since the preceding day.
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
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
segregate with its Custodian, in the name of the broker performing the
transaction, an "initial margin" of cash or other liquid assets equal to
approximately 2% to 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 segregate subsequent deposits at its Custodian for that
purpose, of cash or other liquid assets, called "variation margin", in the name
of the broker, which are reflective of price fluctuations in the futures
contract.
A stock index futures contract is an agreement in which the writer (or
seller) of the contract agrees to deliver to the buyer an amount of 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. When the futures contract is entered into, each party
deposits an initial margin with a broker or in a segregated custodial account of
approximately 5% of the contract amount. Subsequent variation market payments
will be made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures contracts more or
less valuable.
The ordinary spreads between values in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions. In
addition, futures contracts entail risks. First, all participants in the futures
market are subject to initial and variation margin requirements. Rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing price distortions. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are
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less onerous than margin requirements in the securities market. Increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate trends by an investment adviser may still not result in a
successful transaction.
OPTIONS ON FUTURES CONTRACTS
The Fund will also enter into options on futures contracts for certain BONA
FIDE hedging, return enhancement and risk management purposes. The Fund may
purchase put and call options and write (that is, sell) "covered" put and call
options on futures contracts that are traded on U.S. and foreign exchanges. 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). If the option is exercised by the holder before the last trading day
during the option period, the option writer delivers the futures position, as
well as any balance in the writer's futures margin account, which represents the
amount by which the market price of the stock index 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 stock index future. If it is exercised on
the last trading day, the option writer delivers to the option holder cash in an
amount equal to the difference between the option exercise price and the closing
level of the relevant index on the date the option expires.
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.
The Fund may only write (that is, sell) covered put and call options on
futures contracts. The Fund will be considered "covered" with respect to a call
option it writes on a futures contract if the Fund owns the securities or
currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the
strike price of the "covered" option and having an expiration date not earlier
than the expiration date of the "covered" option, or if it segregates and
maintains with its Custodian for the term of the option cash or other liquid
assets, equal to the fluctuating value of the optioned futures. The Fund will be
considered "covered" with respect to a put option it writes on a futures
contract if it owns an option to sell that futures contract having a strike
price equal to or greater than the strike price of the "covered" option and
having an expiration date not earlier than the expiration date of the "covered"
option, or if it segregates with its Custodian for the term of the option cash
or other liquid assets at all times equal in value to the exercise price of the
put (less any initial margin deposited by the Fund with its Custodian with
respect to such put option). There is no limitation on the amount of the Fund's
assets which can be segregated.
Writing a put option on a futures contract serves as a partial hedge against
an increase in the value of securities the Fund intends to acquire. If the
futures price at expiration of the option is above the exercise price, the Fund
will retain the full amount of the option premium which provides a partial hedge
against any increase that may have occurred in the price of the securities the
Fund intends to acquire. If the market price of the underlying futures contract
is below the exercise price when the option is exercised, the Fund will incur a
loss, which may be wholly or partially offset by the decrease in the value of
the securities the Fund intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holdings of securities. If the futures price when the
option is exercised is above the exercise price, however, the Fund will incur a
loss, which may be wholly or partially offset by the increase in the value of
the securities in the Fund's portfolio which were being hedged.
The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the securities it owns
as a result of market activity or fluctuating currency exchange rates. The Fund
will also purchase call options on futures contracts as a hedge against an
increase in the value of securities the Fund intends to acquire as a result of
market activity or fluctuating currency exchange rates.
FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS THEREON
The Fund may buy and sell futures contracts on foreign currencies and
purchase and write options thereon. Generally, foreign currency futures
contracts and options thereon are similar to the futures contracts and options
thereon discussed previously. By entering into currency futures and options
thereon on U.S. and foreign exchanges, the Fund will seek to establish the rate
at which it will be entitled to exchange U.S. dollars for another currency at a
future time. By selling currency futures, the Fund will seek to
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establish the number of dollars it will receive at delivery for a certain amount
of a foreign currency. In this way, whenever the Fund anticipates a decline in
the value of a foreign currency against the U.S. dollar, the Fund can attempt to
"lock in" the U.S. dollar value of some or all of the securities held in its
portfolio that are denominated in that currency. By purchasing currency futures,
the Fund can establish the number of dollars it will be required to pay for a
specified amount of a foreign currency in a future month. Thus if the Fund
intends to buy securities in the future and expects the U.S. dollar to decline
against the relevant foreign currency during the period before the purchase is
effected, the Fund can attempt to "lock in" the price in U.S. dollars of the
securities it intends to acquire. At the time a futures contract is purchased or
sold, the Fund must allocate cash or securities as initial margin. Thereafter,
the futures contract is valued daily and the payment of "variation margin" may
be required, resulting in the Fund's paying or receiving cash that reflects any
decline or increase, respectively, in the contract's value, that is,
"marked-to-market."
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If an investment adviser, in
purchasing an option, has been correct in its judgment concerning the direction
in which the market or the price of a foreign currency would move as against the
U.S. dollar, the Fund may exercise the option and thereby take a futures
position to hedge against the risk it had correctly anticipated or close out the
option position at a gain that will offset, to some extent, market or currency
exchange losses otherwise suffered by the Fund. If exchange rates move in a way
the Fund did not anticipate, however, the Fund will have incurred the expense of
the option without obtaining the expected benefit; any such movement in exchange
rates may also thereby reduce rather than enhance the Fund's profits on its
underlying securities transactions.
The Fund may also use European-style options. This means that the option is
only exercisable immediately prior to its expiration. This is in contrast to
American-style options, which are exercisable at any time prior to the
expiration date of the option.
ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
Futures contracts and options thereon on securities and currencies may be
traded on foreign exchanges. Such transactions may not be regulated as
effectively as similar transactions in the U.S., may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities. The value of
such positions also could be adversely affected by (1) other complex foreign
political, legal and economic factors, (2) lesser availability than in the U.S.
of data on which to make trading decisions, (3) delays in the Fund's ability to
act upon economic events occurring in the foreign markets during non-business
hours in the U.S., (4) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the U.S. and (5) lesser trading
volume.
Exchanges on which options, futures contracts and options on futures
contracts are traded may impose limits on the positions that the Fund may take
in certain circumstances.
SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES CONTRACTS AND OPTIONS THEREON
There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. The use of these instruments will hedge only the currency risks
associated with investments in foreign securities, not market risks. 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 currency rates, market trends or international
political trends by an investment adviser may still not result in a successful
hedging transaction.
The Fund's ability to establish and close out positions in futures contracts
and options on futures contracts will be subject to the development and
maintenance of liquid markets. Although the Fund generally will purchase or sell
only those futures contracts and options thereon for which there appears to be a
liquid market, there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at any particular
time. In the event no liquid market exists for a particular futures contract or
option thereon in which the Fund maintains a position, it will not be possible
to effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.
Successful use of futures contracts and options thereon by the Fund is
subject to the ability of an investment adviser to predict correctly movements
in the direction of interest and foreign currency rates and the market
generally. If the investment
B-9
<PAGE>
adviser's expectations are not met, the Fund would be in a worse position than
if a hedging strategy had not been pursued. For example, if the Fund has hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities in its portfolio and the price of such securities
increases instead, the Fund will lose part or all of the benefit of the
increased value of its securities because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may have to sell securities
to meet the requirements. These sales may, 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.
LIMITATIONS ON THE PURCHASE AND SALE OF OPTIONS ON STOCK INDICES AND FUTURES
CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
The Fund will engage in transactions in futures contracts and options
thereon only for BONA FIDE hedging, return enhancement and risk management
purposes, in each case in accordance with the rules and regulations of the CFTC,
and not for speculation.
The Fund will write put options on stock indices and futures contracts on
foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or other liquid assets equal to the aggregate
exercise price of the puts. In accordance with CFTC regulations, the Fund may
not purchase or sell futures contracts or options thereon if the initial margin
and premiums for options on futures would exceed 5% of the liquidation value of
the Fund's total assets after taking into account unrealized profits and
unrealized losses on such contracts; provided, however, that in the case of an
option that is in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation. The above restriction does not
apply to the purchase and sale of futures contracts and options thereon for BONA
FIDE hedging purposes within the meaning of the CFTC regulations. In instances
involving the purchase of futures contracts or call options thereon or the
writing of put options thereon by the Fund, an amount of cash and other liquid
assets equal to the market value of the futures contracts and options thereon
(less any related margin deposits), will be segregated with the Fund's Custodian
to cover the position, or alternative cover will be employed, thereby insuring
that the use of such instruments is unleveraged. The Fund does not intend to
purchase options on 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 other liquid assets 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 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, 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 or pledged 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 or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, the Fund will so segregate
or pledge an amount in cash or other liquid assets 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 other liquid assets
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 segregated by
the Fund in cash or other liquid assets with its Custodian, it will not be
subject to the requirements described in this paragraph.
B-10
<PAGE>
The Fund may engage in futures contracts and options on futures transactions
as a hedge against changes, resulting from market or political conditions, in
the value of the currencies to which the Fund is subject or to which the Fund
expects to be subject in connection with future purchases. The Fund may engage
in such transactions when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund. The Fund may write options
on futures contracts to realize through the receipt of premium income a greater
return than would be realized in the Fund's portfolio securities alone.
The Fund's purchase and sale of futures contracts and purchase and writing
of options on futures contracts will be for the purpose of protecting its
portfolio against anticipated future changes in foreign currency exchange rates
which might otherwise either adversely affect the value of the Fund's portfolio
securities or adversely affect the prices of securities that the Fund intends to
purchase at a later date, and to enhance the Fund's return. As an alternative to
BONA FIDE hedging as defined by the CFTC, the Fund may comply with a different
standard established by CFTC rules with respect to futures contracts and options
thereon purchased by the Fund incidental to the Fund's activities in the
securities markets, under which the value of the assets underlying such
positions will not exceed the sum of (1) cash or other liquid assets segregated
for this purpose, (2) cash proceeds on existing investments due within thirty
days and (3) accrued profits on the particular futures contract or option
thereon.
In addition, CFTC regulations may impose limitations on the Fund's ability
to engage in certain return enhancement and risk management strategies. There
are no limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.
Although the Fund intends to purchase or sell futures and options on futures
only on exchanges where there appears to be an active market, there is no
guarantee that an active market will exist for any particular contract or at any
particular time. If there is not a liquid market at a particular time, it may
not be possible to close a futures position at such time, and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, when futures positions are used to
hedge portfolio securities, such securities will not be sold until the futures
positions can be liquidated. In such circumstances, an increase in the price of
securities, if any, may partially or completely offset losses on the futures
contracts.
RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
Participation in the options or futures market 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. The Fund, and thus its
investors, may lose money through any unsuccessful use of these strategies. If a
Subadviser's predictions of movements in the direction of the securities or
foreign currency 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 these strategies include: (1) dependence on a
Subadviser's ability to predict correctly movements in the direction of
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 risk that the counterparty may be
unable to complete the transaction; 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 liquid assets in connection with hedging transactions.
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
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 an 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.
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 quite short, possibly
overnight or a few days,
B-11
<PAGE>
although it may extend over a number of months. The resale price is in excess of
the purchase price, reflecting an agreed-upon rate of return effective for the
period of time the Fund's money is invested in the repurchase agreement. The
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. The instruments held as collateral
are valued daily, and if the value of the instruments declines, the Fund will
require additional collateral. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss. The Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the Fund's Board of Trustees. The
investment adviser will monitor the creditworthiness of such parties, under the
general supervision of the Board of Trustees. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM) pursuant
to an order of the Securities and Exchange Commission (the Commission). On a
daily basis, any uninvested cash balances of the Fund may be aggregated with
those of such investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the joint
account based on the percentage of its investment.
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 other liquid assets or an
irrevocable letter of credit in favor of the Fund equal to at least 100% of 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 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 Trustees 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 up to 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 (within 3 days) 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. The Fund will not purchase portfolio securities when borrowings
exceed 5% of the value of its total assets.
ILLIQUID SECURITIES
The Fund may hold up to 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. Repurchase agreements subject to demand are
deemed to have a maturity equal to the applicable notice period.
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
B-12
<PAGE>
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).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and privately placed commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the Trustees. The Fund's investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. The investment advisers will monitor the
liquidity of such restricted securities subject to the supervision of the Board
of Trustees. In reaching liquidity decisions, an investment adviser will
consider, among others, 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 (for example, 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, (a) 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 an investment adviser; and (b) it must not be "traded
flat" (that is, without accrued interest) or in default as to principal or
interest.
REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in securities of real estate investment trusts or REITs.
Unlike corporations, REITs do not have to pay income taxes if they meet certain
Internal Revenue Code requirements. To qualify, a REIT must distribute at least
95% of its taxable income to its shareholders and receive at least 75% of that
income from rents, mortgages and sales of property. REITs offer investors
greater liquidity and diversification than direct ownership of a handful of
properties, as well as greater income potential than an investment in common
stock. Like any investment in real estate, though, a REIT's performance depends
on several factors, such as its ability to find tenants for its properties, to
renew leases and to finance property purchases and renovations.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund is permitted to invest up to 10% of its total assets in securities
of other non-affiliated investment companies. The Fund does not intend to invest
in such securities during the coming year. If the 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."
SEGREGATED ASSETS
The Fund will segregate with its Custodian, State Street Bank and Trust
Company (State Street), cash, U.S. Government securities, equity securities
(including foreign securities), debt securities or other liquid, unencumbered
assets equal in value to its obligations in respect of potentially leveraged
transactions. These include forward contracts, when-issued and delayed delivery
B-13
<PAGE>
securities, futures contracts, written options and options on futures contracts
(unless otherwise covered). If collateralized or otherwise covered, in
accordance with Commission guidelines, these will not be deemed to be senior
securities. The assets segregated will be marked-to-market daily.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on 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 as much as
a month or more in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. The Fund's Custodian will segregate cash or other liquid assets
having a value equal to or greater than the Fund's purchase commitments. The
securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during the period between purchase and settlement. At
the time of delivery of the securities the value may be more or less than the
purchase price and an increase in the percentage of the Fund's assets committed
to the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value.
(d) TEMPORARY DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When adverse market or economic conditions dictate a defensive strategy, the
Fund may temporarily invest without limit in high quality money market
instruments, including commercial paper of corporations, foreign government
securities, certificates of deposit, bankers' acceptances and other obligations
of domestic and foreign banks, non-covertible debt securities (corporate and
government), obligations issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities, repurchase agreements and cash (foreign
currencies or U.S. dollars). Money market instruments typically have a maturity
of one year or less as measured from the date of purchase.
The Fund may also temporarily hold cash or 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 subject to the 80% policy.
(e) PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions. For the fiscal period ended
January 31, 1999, the Fund's portfolio turnover rate was %. 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 (100% or more)
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
"Brokerage Allocation and Other Practices" and "Taxes, Dividends and
Distributions."
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 (1) 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 (2) 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
B-14
<PAGE>
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 Trustees pursuant to deferred compensation arrangements are not
deemed to be a pledge of assets subject to this restriction.
4. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result 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.
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 non-affiliated 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 (a) repurchase agreements and (b) 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.
B-15
<PAGE>
MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Edward D. Beach (74) Trustee President and Director of BMC Fund, Inc., a closed-end
investment company; previously, 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; Director or Trustee of 44 funds within the
Prudential Mutual Funds.
Delayne Dedrick Gold (59) Trustee Marketing and Management Consultant; Director or Trustee
of 44 funds within the Prudential Mutual Funds.
*Robert F. Gunia (51) Vice President and Trustee Vice President (since September 1997) of The Prudential
Insurance Company of America (Prudential); Executive Vice
President and Treasurer (since December 1996) of
Prudential Investments Fund Management LLC (PIFM); Senior
Vice President (since March 1987) of Prudential
Securities Incorporated (Prudential Securities); formerly
Chief Administrative Officer (July 1990-September 1996),
Director (January 1989-September 1996) and Executive Vice
President, Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund
Management, Inc.; Vice President and Director (since May
1989) of The Asia Pacific Fund, Inc.; Director or Trustee
of 44 funds within the Prudential Mutual Funds.
Douglas H. McCorkindale (58) Trustee Vice Chairman (since March 1984) and President (since
September 1997) of Gannett Co. Inc. (publishing and
media); Director of Gannett Co. Inc., Frontier
Corporation and Continental Airlines, Inc. and Director
or Trustee of 23 funds within the Prudential Mutual
Funds.
*Mendel A. Melzer, CFA (38) Trustee Chief Investment Officer (since October 1996) of
751 Broad Street Prudential Mutual Funds; formerly Chief Financial Officer
Newark, NJ 07102 (November 1995-September 1996) of Prudential Investments,
Senior Vice President and Chief Financial Officer (April
1993-November 1995) of Prudential Preferred Financial
Services, Managing Director (April 1991-April 1993) of
Prudential Investment Advisors and Senior Vice President
(July 1989-April 1991) of Prudential Capital Corporation;
Chairman and Director of Prudential Series Fund, Inc.;
Director or Trustee of 44 other funds within the
Prudential Mutual Funds.
Thomas T. Mooney (56) Trustee 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,
Executive Service Corps of Rochester, Monroe County
Industrial Development Corporation, Northeast-Midwest
Institute, President, Director and Treasurer of First
Financial Fund, Inc. and The High Yield Plus Fund, Inc.
and Director or Trustee of 33 other funds within the
Prudential Mutual Funds.
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Stephen P. Munn (55) Trustee Chairman (since January 1994), Director and President
(since 1988) and Chief Executive Officer (1988-December
1993) of Carlisle Companies Incorporated (manufacturer of
industrial products) and Director or Trustee of 18 funds
within the Prudential Mutual Funds.
Richard A. Redeker (55) Trustee Formerly President, Chief Executive Officer and Director
(October 1993-September 1996) of Prudential Mutual Fund
Management, Inc., Executive Vice President, Director and
Member of the Operating Committee (October 1993-September
1996) of Prudential Securities, Director (October
1993-September 1996) of Prudential Securities Group,
Inc., Executive Vice President (January 1994-September
1996) of The Prudential Investment Corporation, Director
(January 1994-September 1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services,
Inc. and Senior Executive Vice President and Director
(September 1978-September 1993) of Kemper Financial
Services, Inc.; Director or Trustee of 30 funds within
the Prudential Mutual Funds.
Robin B. Smith (58) Trustee Chairman and Chief Executive Officer (since August 1996),
formerly President and Chief Executive Officer (January
1989-August 1996) and President and Chief Operating
Officer (September 1981-December 1988) of Publishers
Clearing House; Director of BellSouth Corporation, Texaco
Inc., Spring Industries Inc. and Kmart Corporation and
Director or Trustee of 32 funds within the Prudential
Mutual Funds.
*Brian M. Storms (44) President and Trustee President (since October 1988), Prudential Investments;
formerly President (September 1996-October 1998),
Prudential Mutual Funds, Annuities and Investment
Management Services, Managing Director (July
1991-September 1996), Fidelity Investment Institutional
Services Company, Inc., President (October 1989-September
1991), J.K. Schofield, Senior Vice President (September
1982-October 1989), INVEST Financial Corporation;
President and Director or Trustee of 47 funds within the
Prudential Mutual Funds.
Louis A. Weil, III (57) Trustee Chairman (since January, 1999), 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 (May
1989-March 1991) of Time Magazine, President, Publisher &
Chief Executive Officer (February 1986-August 1989) of
The Detroit News and member of the Advisory Board, Chase
Manhattan Bank-Westchester; Director or Trustee of 30
funds within the Prudential Mutual Funds.
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Clay T. Whitehead (59) Trustee President (since May 1983) of National Exchange Inc. (new
business development firm) and Director or Trustee of 18
funds within the Prudential Mutual Funds.
Grace C. Torres (39) Treasurer and Principal First Vice President (since December 1996) of PIFM; First
Financial and Accounting Vice President (since March 1994) of Prudential
Officer Securities; formerly First Vice President (March
1994-September 1996) of Prudential Mutual Fund
Management, Inc. and Vice President (July 1989-March
1994) of Bankers Trust Corporation.
Marguerite E. H. Morrison (42) Secretary Vice President and Associate General Counsel (since
December 1996) of PIFM; Vice President and Associate
General Counsel of Prudential Securities; formerly Vice
President and Associate General Counsel (June
1991-September 1996) of Prudential Mutual Fund
Management, Inc.
Stephen M. Ungerman (44) Assistant Treasurer Tax Director (since March 1996) of Prudential Investments;
formerly First Vice President (February 1993-September
1996) of Prudential Mutual Fund Management, Inc.
</TABLE>
- ------------------------
* "Interested" Trustee, as defined in the Investment Company Act, by reason of
affiliation with Prudential Securities, Prudential or PIFM.
** Unless otherwise indicated, the address of the Trustees and officers is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
The Fund has Trustees who in addition to overseeing the actions of the
Fund's Manager, Subadvisers and Distributor, decide upon matters of general
policy. The Trustees also review the actions of the Fund's officers who conduct
and supervise the daily business operations of the Fund.
Pursuant to the terms of 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 Trustees of the Fund who are affiliated persons of the
Manager. The Fund currently pays each of its Trustees who is not an affiliated
person of PIFM or the investment advisers annual compensation of $2,000, in
addition to certain out-of-pocket expenses. The amount of annual compensation
paid to each Trustee may change as a result of the introduction of additional
funds on the boards of which the Trustee will be asked to serve.
Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Trustees' 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 a Commission 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 Trustee. The Fund's obligation to make payments of deferred Trustees'
fees, together with interest thereon, is a general obligation of the Fund.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended January 31, 1999 to the Trustees who are not
affiliated with the Manager and the aggregate compensation paid to such Trustees
for service on the Fund's Board and the boards of all other investment companies
managed by PIFM (Fund Complex) for the calendar year ended December 31, 1998.
B-18
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL 1998
COMPENSATION
AGGREGATE FROM FUND
COMPENSATION COMPLEX PAID
NAME OF TRUSTEE FROM FUND TO TRUSTEES
- ----------------------------------------------------------------------------------- ------------ ----------------------
<S> <C> <C>
Edward D. Beach.................................................................... $2,000 $135,000(44/71)*
Delayne Dedrick Gold............................................................... 2,000 135,000(44/71)*
Robert F. Gunia+................................................................... -- --
Douglas H. McCorkindale**.......................................................... 2,000 70,000(23/40)*
Mendel A. Melzer+.................................................................. -- --
Thomas T. Mooney**................................................................. 2,000 115,000(35/70)*
Stephen P. Munn.................................................................... 2,000 45,000(18/24)*
Richard A. Redeker+................................................................ -- --
Robin B. Smith**................................................................... 2,000 90,000(32/41)*
Brian M. Storms+................................................................... -- --
Louis A. Weil, III................................................................. 2,000 90,000(30/54)*
Clay T. Whitehead.................................................................. 2,000 45,000(18/24)*
</TABLE>
- ------------------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
** Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998, includes amounts deferred at the
election of Trustees under the funds' deferred compensation plans. Including
accrued interest, total compensation amounted to $71,145, $119,740 and
$116,225 for Messrs. McCorkindale and Mooney and Ms. Smith, respectively.
+ Interested Trustees do not receive compensation from the Fund or any fund in
the Fund Complex. Mr. Redeker is no longer an interested Trustee.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Trustees of the Fund are eligible to purchase Class Z shares of the Fund,
which are sold without either an initial sales charge or contingent deferred
sales charge to a limited group of investors.
As of April , 1999, the Trustees and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund.
As of April , 1999, Prudential Securities was the record holder for other
beneficial owners of Class A shares (or % of the outstanding Class A shares),
Class B shares (or % of the outstanding Class B shares), Class C shares (or
% of the outstanding Class C shares), and Class Z shares (or % of the
outstanding Class Z shares) of the Fund. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause the forwarding of,
proxy materials to the beneficial owners for which it is the record holder.
INVESTMENT ADVISORY AND OTHER SERVICES
(A) MANAGER AND INVESTMENT ADVISERS
The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM 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 February 28,
1999, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately $ billion. According to the
Investment Company Institute, as of December 31, 1998, the Prudential Mutual
Funds were the largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (Prudential). Prudential Mutual Fund Services LLC (PMFS or
the Transfer Agent), a wholly-owned subsidiary of PIFM, 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.
B-19
<PAGE>
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, subject to the supervision of the Fund's Board of Trustees 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, PIFM is obligated to keep certain books and records of the
Fund. PIFM also administers the Fund's business 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
PMFS, the Fund's transfer and dividend disbursing agent. The management services
of PIFM for the Fund are not exclusive under the terms of the Management
Agreement and PIFM is free to, and does, render management services to others.
For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly.
In connection with its management of the business affairs of the Fund, PIFM
bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and the Manager,
except the fees and expenses of Trustees who are not affiliated persons of PIFM
or the Fund's investment advisers;
(b) all expenses incurred by PIFM or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation,
doing business as Prudential Investments (PI), and to Jennison Associates LLC
(Jennison, and collectively with PI, the investment advisers or the Subadvisers)
pursuant to the subadvisory agreements between PIFM and PI and PIFM and
Jennison, respectively (the Subadvisory Agreements).
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 Trustees 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 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 share 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 Commission,
including the preparation and printing of the Fund's registration statements and
prospectuses for such purposes, and paying the fees and expenses of notice
filings made in accordance with state securities laws, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' 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 PIFM 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 from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. For the fiscal period
ended January 31, 1999, PIFM received management fees of $2,388,789.
PIFM has entered into a Subadvisory Agreement with each Subadviser. The
Subadvisory Agreements provide that the Subadvisers will furnish investment
advisory services to approximately 50% of the Fund's portfolio in connection
with the management of the Fund. In connection therewith, PI and Jennison are
obligated to keep certain books and records of the Fund. Under the Subadvisory
Agreements, the Subadvisers, subject to the supervision of PIFM, are responsible
for managing the assets of the Fund in accordance with its investment
objectives, investment program and policies. The Subadvisers determine what
securities and other instruments are purchased and sold for the Fund and are
responsible for obtaining and evaluating financial data relevant to the Fund.
PIFM continues to have responsibility for all investment advisory services
pursuant to the Management Agreement. Under the Subadvisory Agreements, PI is
reimbursed by PIFM for the reasonable costs and expenses incurred by PI in
furnishing those services to the portion of the assets of the Fund which it
manages and Jennison is compensated by PIFM for its
B-20
<PAGE>
services at an annual rate of .30 of 1% of the Fund's average daily net assets
for the portion of such assets which Jennison manages up to and including $300
million and .25 of 1% of such average daily net assets in excess of $300
million. For the fiscal period ended January 31, 1999, Jennison received $
from the Fund.
Each 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. Each Subadvisory Agreement may be
terminated by the Fund, PIFM or the Subadviser with whom the Subadvisory
Agreement was entered into upon not more than 60 days', nor less than 30 days',
written notice. Each 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.
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLANS
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. Prior to June 1, 1998, Prudential
Securities Incorporated (Prudential Securities) was the Fund's distributor. PIMS
and Prudential Securities are subsidiaries of Prudential.
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), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares, respectively. The
Distributor also incurs the expenses of distributing the Class Z shares under
the Distribution Agreement with the Fund, none of which are reimbursed by or
paid for by the Fund.
The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of, brokers or 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 the Distributor associated with the sale of Fund
shares, including lease, utility, communications and sales promotion expenses.
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.
The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor 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 (1) 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 (2) 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. The Distributor 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
January 31, 2000 and voluntarily limited its distribution-related fees for the
fiscal period ended January 31, 1999 to .25 of 1% of the average daily net
assets of the Class A shares.
For the fiscal period ended January 31, 1999, the Distributor and Prudential
Securities collectively received payments of $192,505 under the Class A Plan and
spent approximately $ in distributing the Fund's shares. This amount was
primarily expended for payment of account servicing fees to financial advisers
and other persons who sell Class A shares. For the fiscal period ended January
31, 1999, the Distributor and Prudential Securities also collectively received
approximately $ in initial sales charges.
CLASS B PLAN AND CLASS C PLANS. Under the Class B and Class C Plans, the
Fund pays the Distributor 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 the Distributor of (1) an asset-based sales charge of
.75 of 1% of the average daily net assets of each of the Class B and Class C
shares, respectively, and (2) 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.
B-21
<PAGE>
CLASS B PLAN. For the fiscal period ended January 31, 1999, the Distributor
and Prudential Securities collectively received $1,959,165 from the Fund under
the Class B Plan and spent approximately $ in distributing the Class B
shares. It is estimated that of the latter amount, approximately % ($ )
was spent on printing and mailing of prospectuses to other than current
shareholders; % ($ ) was spent on compensation to broker-dealers for
commissions to its representatives and other expenses, including an allocation
on account of overhead and other branch office distribution-related expenses,
incurred for distribution of Class B shares; and % ($ ) was spent on
the aggregate of (1) payments of commissions and account servicing fees to
financial advisers ( % or $ ) and (2) an allocation on account of
overhead and other branch office distribution-related expenses ( % or
$ ). The term "overhead and other branch office distribution-related
expenses" represents (a) the expenses of operating Prudential Securities' and
Pruco Securities Corporation's (Prusec's) branch offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefits
of operations and sales support personnel, utility costs, communications costs
and the costs of stationery and supplies, (b) the costs of client sales
seminars, (c) expenses of mutual fund sales coordinators to promote the sale of
Fund shares and (d) other incidental expenses relating to branch promotion of
Fund sales.
The Distributor (and Prudential Securities as its predecessor) also receives
the proceeds of contingent deferred sales charges paid by investors upon certain
redemptions of Class B shares. For the fiscal period ended January 31, 1999, the
Distributor and Prudential Securities collectively received approximately $
in contingent deferred sales charges attributable to Class B shares.
CLASS C PLAN. For the fiscal period ended January 31, 1999, the Distributor
and Prudential Securities collectively received $380,207 from the Fund under the
Class C Plan and spent approximately $ in distributing the Fund's Class C
shares. It is estimated that of the latter amount, approximately % ($ )
was spent on printing and mailing of prospectuses to other than current
shareholders; % ($ ) was spent on compensation to broker-dealers for
commissions to representatives and other expenses, including an allocation on
account of overhead and other branch office distribution-related expenses,
incurred for distribution of Class C shares; and % ($ ) was spent on
the aggregate of (1) commission credits to Prudential Securities branch offices,
for payments of commissions and account servicing fees to financial advisers
( % or $ ) and (2) an allocation on account of overhead and other branch
office distribution-related expenses ( % or $ ).
The Distributor (and Prudential Securities as its predecessor) also receives
the proceeds of contingent deferred sales charges paid by investors upon certain
redemptions of Class C shares. For the fiscal period ended January 31, 1999, the
Distributor and Prudential Securities collectively received collectively
approximately $ in contingent deferred sales charges attributable to Class C
shares. The Distributor also receives initial sales charges for the sale of
Class C shares, beginning November 2, 1998, which amounted to $ for the
period ended January 31, 1999.
Distribution expenses attributable to the sale of Class A, Class B or Class
C shares of the Fund will be allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C 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.
The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Trustees, including a majority vote of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the Class A, Class B and Class C Plan or in any agreement related to
the Plans (the Rule 12b-1 Trustees), cast in person at a meeting called for the
purpose of voting on such continuance. A Plan may be terminated at any time,
without penalty, by the vote of a majority of the Rule 12b-1 Trustees or by the
vote of the holders of a majority of the outstanding shares of the applicable
class of the Fund on not more than 60 days', nor less than 30 days', written
notice to any other party to the Plan. 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 Trustees in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be obligated to pay expenses incurred under any
Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the 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 Trustees shall be committed to the Rule 12b-1 Trustees.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws.
B-22
<PAGE>
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 (including Prudential Securities) and other persons who
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.
FEE WAIVERS/SUBSIDIES
PIFM 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. These
voluntary waivers may be terminated at any time without notice. In addition, the
Distributor has agreed to waive a portion of its distribution fees for the Class
A shares for the fiscal year ending January 31, 2000. Fee waivers and subsidies
will increase the Fund's total return.
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. 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
included in the calculation of the 6.25% limitation. The annual asset-based
sales charge of the Fund may not exceed .75 of 1%. The 6.25% limitation applies
to each class of the 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.
(c) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities of the
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 the Fund's foreign assets held outside the United States.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
PMFS is a wholly-owned subsidiary of PIFM. 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 $10.00, 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.
[Independent Accountants], 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.
BROKERAGE ALLOCATION AND OTHER PRACTICES
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 Subadvisers. Broker-dealers may receive 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. Brokerage
commissions on United States securities options and futures are subject to
negotiation between the Manager and the broker or futures commission merchant.
In the over-the-counter markets, securities 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.
The 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 Commission. Thus, it will not deal in the
over-the-counter market 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
the Fund's order.
B-23
<PAGE>
In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of favorable
price and efficient execution. The Manager seeks to effect each transaction at a
price and commission that provides the most favorable total cost or proceeds
reasonably attainable in the circumstances. The factors that the Manager may
consider in selecting a particular broker, dealer or futures commission merchant
(firms) are the Manager's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the portfolio
transaction; the size of the transaction; the desired timing of the trade; the
activity existing and expected in the market for the particular transaction;
confidentiality; the execution, clearance and settlement capabilities of the
firms; the availability of research and research related services provided
through such firms; the Manager's knowledge of the financial stability of the
firms; the Manager's knowledge of actual or apparent operational problems of
firms; and the amount of capital, if any, that would be contributed by firms
executing the transaction. Given these factors, the Fund may pay transaction
costs in excess of that which another firm might have charged for effecting the
same transaction.
When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research products and/or services, such as
research reports, research compilations, statistical and economic data, computer
data bases, quotation equipment and services, research oriented computer
software, hardware and services, reports concerning the performance of accounts,
valuations of securities, investment related periodicals, investment seminars
and other economic services and consultants. Such services are used in
connection with some or all of the Manager's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.
The Manager maintains an internal allocation procedure to identity those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to the Fund and its other clients. The
Manager makes a good faith determination that the research and/or service is
reasonable in light of the type of service provided and the price and execution
of the related portfolio transactions.
When the Manager deems the purchase or sale of equities to be in the best
interests of the Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to its clients.
The allocation or orders among firms and the commission rates paid are
reviewed periodically by the Fund's Board of Trustees. Portfolio securities may
not be purchased from any underwriting or selling syndicate of which Prudential
Securities or any 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 Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future, in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.
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 the 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 firms 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
firm in a commensurate arm's-length transaction. Furthermore, the Board of
Trustees of the Fund, including a majority of non-interested Trustees, has
adopted procedures which are reasonably designed to provide that any
commissions, 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 the Fund unless the Fund has expressly authorized the retention of
such compensation. Prudential Securities must furnish to the 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
(or any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.
B-24
<PAGE>
The table below shows certain information regarding the payment of
commissions by the Fund, including the commissions paid to Prudential
Securities, for the fiscal period ended January 31, 1999.
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED JANUARY 31,
ITEM 1999
- ---------------------------------------------------------------------------------------- --------------------------------
<S> <C>
Total brokerage commissions paid by the Fund............................................ $
Total brokerage commissions paid to Prudential Securities............................... $
Percentage of total brokerage commissions paid Prudential Securities.................... %
</TABLE>
The Fund effected approximately % of the total dollar amount of its
transactions involving the payment of commissions to Prudential Securities
during the fiscal period ended January 31, 1999. Of the total brokerage
commissions paid during that period, $ (or %) were paid to firms which
provided research, statistical or other services to the Manager. PIFM has not
separately identified a portion of such brokerage commissions as applicable to
the provision of such research, statistical or other services.
The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at January 31, 1999. As of January 31, 1999, the Fund held
securities of in the aggregate amount of .
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, $.001 par value per share divided into four classes, designated Class
A, Class B, Class C, and Class Z shares. Each class of par value shares
represents an interest in the same assets of the Fund and is identical in all
respects except that (1) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (2) 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, (3) each
class has a different exchange privilege, (4) only Class B shares have a
conversion feature and (5) Class Z shares are offered exclusively for sale to a
limited group of investors. In accordance with the Fund's Declaration of Trust,
the Trustees may authorize the creation of additional series and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. The voting rights of the
shareholders of a series or class can be modified only by the vote of
shareholders of that series or class.
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. Each share of
each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z shares,
which are not subject to any distribution or service fees) bears the expenses
related to the distribution of its shares. 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 the Fund is
entitled to its portion of all of the Fund's assets after all debt 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 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 Trustees 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 the vote of 10% of
the Fund's outstanding shares for the purpose of voting on the removal of one or
more Trustees or to transact any other business.
Under the Declaration of Trust, the Trustees may authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios with distinct investment objectives
and policies and share purchase, redemption and net asset value procedures) with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine. All consideration received by the Fund for shares of any
additional series, and all assets in which such consideration is invested, would
belong to that series (subject only to the rights of creditors of that series)
and would be subject to the liabilities related thereto. Under the Investment
Company Act, shareholders of any additional series of shares would normally have
to approve the adoption of any advisory contract relating to such series and of
any changes in the investment policies related thereto.
B-25
<PAGE>
The Trustees have the power to alter the number and the terms of office of
the Trustees, provided that always at least a majority of the Trustees have been
elected by the shareholders of the Fund. The voting rights of shareholders are
not cumulative, so that holders of more than 50 percent of the shares voting
can, if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) or (2) 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 NAV without
any sales charges.
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
20/20 Focus Fund, specifying on the wire the account number assigned by PMFS and
your name and identifying the class in which you are eligible to invest (Class
A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (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 20/20 Focus Fund,
Class A, Class B, Class C and 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.
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or (3)
other acquisitions of portfolio securities that (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by one of the Fund's investment advisers.
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%, Class C*
shares are sold with a 1% sales charge, and Class B* and Class Z shares are sold
at NAV. Using the NAV of the Fund at January 31, 1999, the maximum offering
price of the Fund's shares is as follows:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share............ $ 11.49
Maximum sales charge (5% of offering price)....................... .60
------
Offering price to public.......................................... $ 12.09
------
------
CLASS B
Net asset value, redemption price and offering price per Class B
share*........................................................... $ 11.46
------
------
CLASS C
Net asset value, redemption price and offering price per Class C
share*........................................................... $ 11.46
Sales charge (1% of offering price)............................... .12
------
Offering price to public.......................................... $ 11.58
------
------
CLASS Z
Net asset value, offering price and redemption price per Class Z
share............................................................ $ 11.49
------
------
--------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions.
</TABLE>
B-26
<PAGE>
SELECTING A PURCHASE ALTERNATIVE
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:
If you intend to hold your investment in the Fund for less than 4 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 longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the initial sales charge plus the cumulative annual
distribution-related fee on Class A shares would exceed those of the Class B and
Class C shares if you redeem your investment during this time period. In
addition, more of your money would be invested initially in the case of Class C
shares, because of the relatively low initial sales charge, and all of your
money would be invested initially in the case of Class B shares, which are sold
at NAV.
If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the Class
B and 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 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 5 years in the case of Class
C shares for the higher cumulative annual distribution-related fee on those
shares plus, in the case of Class C shares, the 1% initial sales charge to
exceed the initial sales charge plus the 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 NAV, the effect of
the return on the investment over this period of time or redemptions when the
CDSC is applicable.
REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES
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, deferred compensation
or annuity plans under Sections 401(a), 403(b) and 457 of the Internal Revenue
Code, "rabbi" trusts and non-qualified deferred compensation plans that are
sponsored by any employer that has a tax-qualified plan with Prudential
(collectively, Benefit Plans), provided that the Benefit 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 Prudential, Prudential Securities or its subsidiaries
(Prudential Securities 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.
PRUDENTIAL RETIREMENT PROGRAMS. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, for which Prudential provides
administrative or recordkeeping services, provided that (1) the plan has at
least $1 million in existing assets or 250 eligible employees and (2) the Fund
is an available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans 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 plans that participate in the
PruArray Program (benefit plan recordkeeping service) (hereafter referred to as
a PruArray Plan). All Benefit Plans of a company (or affiliated companies under
common control) for which Prudential serves as plan administrator or
recordkeeper are aggregated in meeting the $1 million threshold, provided that
Prudential has been notified in advance of the entitlement to the waiver of the
sales charge based on the aggregated assets. The term "existing assets" includes
stock issued by a plan sponsor, shares of Prudential Mutual Funds and shares of
certain unaffiliated mutual funds that participate in the PruArray Plan
(Participating Funds). "Existing assets" also include monies invested in The
Guaranteed Investment Account (GIA), a group annuity insurance product issued by
Prudential, the Guaranteed
B-27
<PAGE>
Insulated Separate Account, a separate account offered by Prudential, and units
of The Stable Value Fund (SVF), an unaffiliated bank collective fund. Class A
shares may also be purchased at NAV by plans that have monies invested in GIA
and SVF, provided (1) the purchase is made with the proceeds of a redemption
from either GIA or SVF and (2) Class A shares are an investment option of the
plan.
PRUARRAY ASSOCIATION BENEFIT PLANS. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are members
of a common trade, professional or membership association (Association) that
participate in a PruArray Plan provided that the Association enters into a
written agreement with Prudential. Such Benefit Plans or non-qualified plans may
purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (1) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (2) maintain their accounts with the Transfer Agent.
PRUARRAY SAVINGS PROGRAM. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
at NAV by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (1) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (2) spouses
of employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray 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
the Distributor or the Transfer Agent by:
- officers of the Prudential Mutual Funds (including the Fund),
- employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent,
- employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,
- Prudential, 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,
- registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor provided that purchases at
NAV are permitted by such person's employer,
- investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) 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, (2) the purchase is made with proceeds of a
redemption of shares of any open-end non-money market fund sponsored by the
financial adviser's previous employer (other than a fund which imposes a
distribution or service fee of .25 of 1% or less) and (3) the financial
adviser served as the client's broker on the previous purchase,
- investors in Individual Retirement Accounts, provided the purchase is made
in a directed rollover to such Individual Retirement Account with the
proceeds of a tax-free rollover of assets from a Benefit Plan for which
Prudential provides administrative or recordkeeping services and further
provided that such purchase is made within 60 days of receipt of the
Benefit Plan distribution,
- orders placed by broker-dealers, investment advisers or financial planners
who have entered into an agreement with the Distributor, who place trades
for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services (for example, mutual
fund "wrap" or asset allocation programs), and
- orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment adviser
or financial planner and the broker-dealer, investment adviser or financial
planner charges the clients a separate fee for its services (for example,
mutual fund "supermarket programs").
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale
B-28
<PAGE>
qualifies for the reduced or waived 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 acquired upon the reinvestment of dividends and
distributions.
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the 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 "How to Buy, Sell and Exchange Shares of the
Fund--Reducing or Waiving Class A's Initial Sales Charge" in the Prospectus of
the Fund.
An eligible group of related Fund investors includes any combination of the
following:
- an individual,
- the individual's spouse, their children and their parents,
- the individual's and spouse's Individual Retirement Account (IRA),
- 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),
- a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children,
- a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse, and
- one or more employee benefit plans of a company controlled by an
individual.
Also, 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 Transfer Agent, the Distributor or your broker 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 any retirement or group plans.
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 the
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. However, the value of shares held directly with the
Transfer Agent and through your broker will not be aggregated to determine the
reduced sales charge. The value of existing holdings for purposes of determining
the reduced sales charge is calculated using the maximum offering or price (NAV
plus maximum sales charge) as of the previous business day. The Distributor or
the Transfer Agent 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.
LETTER OF INTENT. Reduced sales charges also 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 the Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may also
qualify to purchase Class A shares at NAV by entering into a Letter of Intent
whereby they agree to enroll, within a thirteen-month period, a specified number
of eligible employees or participants (Participant Letter of Intent).
For purposes of the Investment Letter of Intent, all shares of the 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,
Prudential Securities or its affiliates, and through your broker will not be
aggregated to determine the reduced sales charge.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the reduced
sales charge applicable to the amount represented by the
B-29
<PAGE>
goal, as if it were a single investment. In the case of a Participant Letter of
Intent, each investment made during the period will be made at net asset value.
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, except in the
case of retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent (except in the case of retirement and group plans),
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.
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated
number of eligible employees or participants. 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 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 charge 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. If the goal
is exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
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, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to individual
participants in any retirement or group plans.
CLASS B SHARES
The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B shares may be subject to a CDSC. See "Sale of Shares--
Contingent Deferred Sales Charge" below.
The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.
CLASS C SHARES
The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.
WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES
BENEFIT PLANS. Class C shares may be purchased at NAV, without payment of an
initial sales charge, by Benefit Plans (as defined above). 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 Prudential, Prudential Securities or its subsidiaries
(Prudential Securities or Subsidiary Prototype Benefit Plans), Class C shares
may be purchased at NAV by participants who are repaying the loans made from
such plans to the participant.
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived with
respect to purchases of Class C shares by qualified and non-qualified retirement
and deferred compensation plans participating in a PruArray Plan and other plans
for which Prudential provides administrative or recordkeeping services.
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Class C shares at NAV, without the initial sales charge, with the
proceeds from the redemption of shares of any unaffiliated registered investment
company which were not held through an account with any Prudential affiliate.
Such purchases must be made within 60 days of the redemption. Investors eligible
for this waiver include: (1) investors purchasing shares through an account at
Prudential
B-30
<PAGE>
Securities; (2) investors purchasing shares through an ADVANTAGE Account or an
Investor Account with Prusec; and (3) investors purchasing shares through other
brokers. This waiver is not available to investors who purchase shares directly
from the Transfer Agent. You must notify the Transfer Agent directly or through
your broker if you are entitled to this waiver and provide the Transfer Agent
with such supporting documents as it may deem appropriate.
CLASS Z SHARES
Class Z shares of the Fund currently are available for purchase by the
following categories of investors:
- 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
(collectively, Benefit Plans), provided such Benefit 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,
- participants in any fee-based program or trust program sponsored by an
affiliate of the Distributor which includes mutual funds as investment
options and for which the Fund is an available option,
- certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by an affiliate of the Distributor for whom Class Z
shares of the Prudential Mutual Funds are an available investment option,
- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and as of September 20, 1996, (1)
were Class Z shareholders of the Prudential Mutual Funds or (2) executed a
letter of intent to purchase Class Z shares of the Prudential Mutual Funds,
- current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund),
- employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan, and
- Prudential with an investment of $10 million or more.
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, the Distributor
or one of their affiliates may pay brokers, financial advisers and other persons
which distribute shares a finder's fee, from its own resources, based on a
percentage of the net asset value of shares sold by such persons.
SALE OF SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for that day (that is,
4:15 P.M., New York time) in order to receive that day's NAV. Your broker will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact 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 name(s) shown on the face of the
certificates, must be received by the Transfer Agent, the Distributor or your
broker 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 LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or to your broker.
SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4) are
to be paid to a corporation, partnership, trust or fiduciary, and your shares
are held directly with the Transfer Agent, 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
B-31
<PAGE>
"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 Preferred
Services offices. In the case of redemptions from a PruArray Plan, if the
proceeds of the redemption are invested in another investment option of the plan
in the name of the record holder and at the same address as reflected in the
Transfer Agent's records, a signature guarantee is not required.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through a broker, payment for shares presented for redemption will
be credited to your account at your broker, unless you indicate otherwise. Such
payment may be postponed or the right of redemption suspended at times (1) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (2) when trading on such Exchange is restricted, (3) 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 (4) during any other period
when the Commission, by order, so permits; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
prescribed in (2), (3) or (4) exist.
REDEMPTION IN KIND. If the Directors determine 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
Commission. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has 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 NAV of the Fund during any 90-day period for any
one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
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
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC 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 the redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. (If less than a full repurchase is made,
the credit will be on a PRO RATA basis.) You must notify the Transfer Agent,
either directly or through the Distributor or your broker, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales Charge"
below. Exercise of the repurchase privilege will generally not affect federal
tax treatment of any gain realized upon redemption. However, if the redemption
was made within a 30 day period of the repurchase and if the redemption resulted
in a loss, some or all of the loss, depending on the amount reinvested, may not
be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGE
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within 18 months of purchase (one year in the case of shares purchased
before November 2, 1998) 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 18 months, in the case of Class C shares (one year for Class C shares
purchased before November 2, 1998). 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 acquired through reinvestment of
dividends or distributions are not subject to a CDSC. The amount of any CDSC
will be paid to and retained by the Distributor.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of 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. The
CDSC 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.
B-32
<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemption 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 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 NAV above the total amount of payments for
the purchase of Class B shares made during the preceding six years and 18 months
for Class C shares (one year for Class C shares bought before November 2, 1998);
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 decide 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 CHARGE--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), at the time of death or initial determination of
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 are:
(1) in the case of a tax-deferred retirement plan, a lump-sum or other
distribution after retirement;
(2) in the case of an IRA (including a Roth IRA), a lump-sum or other
distribution after attaining age 59 1/2 or a periodic distribution based on
life expectancy;
(3) in the case of a Section 403(b) custodial account, a lump sum or
other distribution after attaining age 59 1/2; and
(4) 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 (that is, 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 for a waiver as described above. In the case of Direct Account and
Prudential Securities 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 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.
B-33
<PAGE>
Finally, the CDSC will be waived to the extent that the proceeds from shares
redeemed are invested in Prudential Mutual Funds, The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account or units of The Stable Value
Fund.
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Trustees of the Fund.
You must notify the Fund's Transfer Agent either directly or through your
broker at the time of redemption, that you are entitled to waiver of the CDSC
and provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement. 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.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in a PruArray Plan and other plans for which Prudential provides
administrative or recordkeeping services. The CDSC will also be waived on
redemptions from Benefit Plans sponsored by Prudential and its affiliates to the
extent that the redemption proceeds are invested in The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account and units of The Stable Value
Fund.
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit
Plans holding shares through a broker not affiliated with Prudential and for
which the broker provides administrative or recordkeeping services.
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: (1)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion
B-34
<PAGE>
date to (b) the total amount paid for all Class B shares purchased and then held
in your account (2) multiplied by the total number of Class B shares purchased
and then held 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 (that is, $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 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 NAV 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.
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 would 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 may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) 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 (2) that the conversion of shares does not constitute a taxable event.
The 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.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a share 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 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 broker. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such dividend or
distribution at NAV 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 NAV
per share next determined after receipt of the check or proceeds by the Transfer
Agent. Such shareholder will receive credit for any CDSC 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 the Fund for shares of certain other Prudential Mutual Funds,
including one 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 the Fund. All exchanges are
made on the basis of relative net asset
B-35
<PAGE>
value next determined after receipt of an order in proper form. An exchange will
be treated as a redemption and purchase for tax purposes. 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.
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. 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.
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.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, 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 LLC, at the address noted above.
CLASS A. Shareholders of the 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 the Fund may exchange their Class B and
Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential Mutual Funds and shares of Prudential Special Money
Market Fund, Inc. 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 the 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 the 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
B-36
<PAGE>
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 the 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. For purposes of calculating
the seven year 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.
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.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
SPECIAL EXCHANGE PRIVILEGES A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV, and for shareholders
who qualify to purchase 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 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.
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. 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 NAV 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, Prusec or another broker 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 elect to have those assets become a part of the fee-based 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 NAV.
Similarly, participants in Prudential Securities' 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 Prudential Securities 401(k) Plan following separation
from service (that is, voluntary or involuntary termination of employment or
retirement) will have their Class Z shares exchanged for Class A shares at NAV.
Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent, the
Distributor or your broker. 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)
B-37
<PAGE>
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
See "Automatic Investment
Plan"
</TABLE>
- ------------------------
(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 the 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 Investment Plan."
AUTOMATIC INVESTMENT PLAN (AIP)
Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
brokerage account (including a Prudential Securities Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The investor's
bank must be a member of the Automatic Clearing House System. Share certificates
are not issued to AIP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or your broker. 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.
In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3) the
shareholder must elect to have all dividends and/or distributions automatically
reinvested in additional full and fractional shares at NAV on shares held under
this plan.
The Transfer Agent, the Distributor or your broker acts as an agent 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 (1) the purchase of Class
A and Class C shares and (2) the redemption 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 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 and other details are
available from the Distributor 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.
B-38
<PAGE>
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.
<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when withdrawn
from the account. Distributions from a Roth IRA which meet the conditions
required under the Internal Revenue Code will not be subject to tax upon
withdrawal from the account.
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 marketed collectively. Typically, these programs are
created with an investment theme, such as, 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. The 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 part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, investors should consult their financial adviser
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
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. The
Fund will compute its NAV 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 the Fund's portfolio securities do not affect NAV. In the event
the New York Stock Exchange closes early on any business day, the NAV of the
Fund's shares shall be determined at a time between such closing and 4:15 P.M.,
New York time. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Under the Investment Company Act, the Board of Trustees is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Trustees, 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 such exchange system 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 or at the bid price on such day in the
absence of an asked price. 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 by the Manager, in consultation with the Subadvisers, to be
over-the-counter, are valued on the basis of valuations provided by an
independent pricing agent or principal market maker 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 by the Manager in consultation with the Subadvisers
to be over-the-counter, are valued at the mean between the last reported bid and
asked prices provided by principal market makers. Options on stock and stock
indices traded on an exchange are
B-39
<PAGE>
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 sale prices as of the close of trading on the applicable commodities
exchange or board of trade or, if there was no sale on the applicable
commodities exchange or board of trade on such day, at the mean between the most
recently quoted bid and asked prices on such exchange or board of trade.
Quotations of foreign securities in a foreign currency are converted to U.S.
dollar equivalents at the current rate obtained from a recognized bank or
dealer, and foreign currency forward contracts are valued at the current cost of
covering or offsetting such contracts. 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 an investment adviser
under procedures established by and under the general supervision of the Fund's
Board of Trustees.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadvisers (or Valuation Committee or
Board of Trustees), does not represent fair value, are valued by the Valuation
Committee or Board of Trustees in consultation with the Manager and Subadvisers,
including their respective portfolio managers, traders and research and credit
analysts on the basis of the following factors: cost of the security,
transactions in comparable securities, relationships among various securities
and such other factors as may be determined by the Manager, Subadvisers, Board
of Trustees or Valuation Committee to materially affect the value of the
security. Short-term investments 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 Trustees not to
represent fair value. Short-term securities with remaining maturities of more
than 60 days, 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.
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 Class A, Class B
or Class C shares because Class Z shares are not subject to any distribution or
service fee. It is expected, however, that the NAV of the four classes will tend
to converge immediately after the recording of dividends, if any, which will
differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected 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 and capital gains which are distributed to shareholders, and permits
net capital gains of the Fund (that is, 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 of the Fund as a regulated investment company requires, among
other things, that (a) the Fund derive at least 90% of the Fund's annual gross
income (without reduction for losses from the sale or other disposition of
securities or foreign currencies) 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 diversify its holdings so that, at the end of each quarter of the
taxable year, (1) at least 50% of the 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 value of the Fund's
assets and 10% of the outstanding voting securities of such issuer, and (2) 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 (c) the Fund distribute
to its shareholders at least 90% of its net investment income and net short-term
gains (that is, the excess of net short-term capital gains over net long-term
capital losses) in each year.
Gains or losses on sales of securities by the 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 otherwise holds an offsetting position with respect to
the securities. 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 be treated as gains and losses from
the sale of securities. If an option written by the 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 the 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 the Fund's transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle provisions of
the Internal
B-40
<PAGE>
Revenue Code which may, among other things, require the Fund to defer
recognition of losses. In addition, debt securities acquired by the Fund may be
subject to original issue discount and market discount rules which,
respectively, may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest or cause gains to be treated as ordinary income.
Special rules apply to most options on stock indices, futures contracts and
options thereon. 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 the Fund's taxable year; that is, treated as having been
sold at market value. 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 on the holding period of the option. In
addition, positions which are part of a "straddle" will be subject to certain
wash sale, short sale and constructive sale provisions of the Internal Revenue
Code. In the case of a straddle, the 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.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and 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 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 the 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, the 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.
Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the NAV of a share of the Fund on the reinvestment
date.
Any dividends or distributions 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 or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. Therefore, prior to purchasing shares of the
Fund, the investor should carefully consider the impact of dividends or capital
gains distributions which are expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of the 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 the 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 the 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 the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to foreign corporations, interest income, capital and
currency gain, gain or loss from Section 1256 contracts (described above), and
income from other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B, Class C and Class Z shares. See "Net Asset Value."
B-41
<PAGE>
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. In addition, the Fund must
distribute during the calendar year 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 calendar year, respectively. To the
extent it does not meet these distribution requirements, the Fund will be
subject to a nondeductible 4% excise tax on the undistributed amount. For
purposes of this excise tax, income on which the Fund pays income tax is treated
as distributed.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). A 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 the 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 on 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 the extent that income is distributed to its shareholders. The Fund
may make a "mark-to-market" election with respect to any marketable 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, as ordinary income
with respect to PFIC stock. No loss will be recognized on PFIC stock, except to
the extent of gains recognized in prior years. Alternatively, the Fund, if it
meets certain requirements, 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.
Income received by the 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 the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. The 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.
Dividends and distributions may also be subject to state and local taxes.
B-42
<PAGE>
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The 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.
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 investment 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.
Below are the average annual total returns for the Fund's share classes for
the periods ended January 31, 1999.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEAR 10 YEAR INCEPTION
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Class A........................................................... N/A N/A N/A (7/1/98)
Class B........................................................... N/A N/A N/A (7/1/98)
Class C........................................................... N/A N/A N/A (7/1/98)
Class Z........................................................... N/A N/A N/A (7/1/98)
</TABLE>
AGGREGATE TOTAL RETURN. The 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.
Aggregate total return represents the cumulative change in the value of an
investment in the 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 investment 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.
Below are the aggregate total returns for the Fund's share classes for the
periods ended January 31, 1999.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEAR 10 YEAR INCEPTION
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Class A........................................................... N/A N/A N/A (7/1/98)
Class B........................................................... N/A N/A N/A (7/1/98)
Class C........................................................... N/A N/A N/A (7/1/98)
Class Z........................................................... N/A N/A N/A (7/1/98)
</TABLE>
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
YIELD=2[( a-b +1)(to the power of 6)-1]
---
cd
<TABLE>
<C> <S>
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
</TABLE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. The yields for Class A, Class B, Class C and Class Z shares for
the 30-day period ended January 31, 1999 were %, %, % and %,
respectively.
B-43
<PAGE>
The Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include data from
Lipper Inc., Morningstar Publications, Inc., and other industry publications,
which publish and market 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)
EDGAR REPRESENTATION OF CHART
PERFORMANCE COMPARISON OF
DIFFERENT TYPES OF INVESTMENTS
OVER THE LONG TERM
(12/31/25-12/31/98)
COMMON STOCKS--11.2%
LONG-TERM GOV'T BONDS--5.3%
INFLATION--3.1%
- ------------------------
(1)Source: Ibbotson Associates. Used with permission. All rights reserved.
Common stock returns are based on the Standard & 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.
Advertising for the Fund also may describe the performance of the stock
market over the last three years, which has shown dynamic growth based on the
performance of the Standard & Poor's 500 Stock Index, according to Standard &
Poor's Ratings Group. As a consequence, many analysts believe that individual
stock selection will become increasingly important. Indeed, the average domestic
equity mutual fund portfolio contained 131 individual stocks at December 31,
1997, according to Morningstar Principia Plus. Over the past 20 years, value
investing and growth investing have each been successful, but one style or the
other has delivered the higher returns in a given year, based on the performance
of the stocks in the S&P/Barra Growth Index and the S&P/Barra Value Index, each
of which are unmanaged, capitalization weighted indices. The Growth Index
includes stocks in the S&P 500 with higher price-to-book ratios and the Value
Index includes stocks in the S&P 500 with lower price-to-book ratios. Results
assume reinvestment of dividends.
B-44
<PAGE>
PRUDENTIAL 20/20 FUND
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
APRIL 14,
1998
------------
<S> <C>
ASSETS
Cash....................................................................................................... $ 100,000
Deferred organization and offering costs (Note 1).......................................................... 300,000
------------
Total assets........................................................................................... 400,000
------------
LIABILITIES
Deferred organization and offering costs payable (Note 1).................................................. 300,000
------------
Net Assets (Note 1)
Applicable to 10,000 shares of beneficial interest....................................................... $ 100,000
------------
------------
Calculation of Offering Price
Class A:
Net asset value and redemption price per Class A share................................................... $ 10.00
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding)
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
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding) ------------
------------
Class C:
Net asset value, offering price and redemption price per Class C share................................... $ 10.00
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding) ------------
------------
Class Z:
Net asset value, offering price and redemption price per Class Z share................................... $ 10.00
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding) ------------
------------
</TABLE>
See Notes to Financial Statement.
B-45
<PAGE>
PRUDENTIAL 20/20 FUND
NOTES TO FINANCIAL STATEMENT
NOTE 1. Prudential 20/20 Fund (the Fund), which was organized as a business
trust in Delaware on December 18, 1997, is an open-end, non-diversified
management investment company. The Fund has had no significant operations other
than the issuance of 2,500 shares each of Class A, Class B, Class C and Class Z
shares of beneficial interest for $100,000 on April 14, 1998 to Prudential
Investments Fund Management LLC (PIFM).
Costs incurred and expected to be incurred in connection with the
organization and offering of the Fund will be paid initially by PIFM and will be
repaid to PIFM 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 PIFM 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
PIFM.
The management fee paid PIFM will be computed daily and payable monthly, at
an annual rate of .75 of 1% of the average daily net assets of the Fund.
Pursuant to a subadvisory agreement between PIFM and The Prudential
Investment Corporation (PIC), doing business as Prudential Investments (PI),
PIFM furnishes investment advisory services pursuant to the management agreement
and supervises PI's performance of such services as to approximately 50% of the
Fund's portfolio. PIFM pays for the services of PI, the cost of compensation of
officers and employees of the Fund, occupancy and certain clerical and
accounting costs of the Fund. Pursuant to a subadvisory agreement between PIFM
and Jennison Associates LLC (Jennison), Jennison furnishes investment advisory
services to approximately 50% of the Fund's portfolio, for which it is
compensated by PIFM at an annual rate of .30 of 1% of the Fund's average daily
net assets for the portion of such assets for which services are provided by
Jennison up to and including $300 million and .25 of 1% of such average net
assets in excess of $300 million. The Fund bears all other costs and expenses.
The Fund has entered into a distribution agreement with Prudential
Securities Incorporated (Prudential Securities or the Distributor) 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, Prudential Securities 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 Prudential Securities 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 Prudential Securities 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 the Distributor 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. The Distributor 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 period ending January 31, 1999.
Pursuant to the Class B and Class C Plans, the Fund compensates the
Distributor 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.
The Distributor 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.
Prudential Mutual Fund Services LLC (PMFS), a wholly-owned subsidiary of
PIFM, serves as the Fund's transfer agent.
PIFM, PIC, Jennison and Prudential Securities are indirect wholly-owned
subsidiaries of The Prudential Insurance Company of America.
B-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
Prudential 20/20 Fund
New York, New York
April 14, 1998
B-47
<PAGE>
Portfolio of Investments as of
July 31, 1998 (Unaudited) PRUDENTIAL 20/20 FOCUS FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------
LONG-TERM INVESTMENTS--94.0%
COMMON STOCKS--94.0%
- -----------------------------------------------------------
Aerospace/Defense--0.7%
91,500 Boeing Co. $ 3,551,344
- ------------------------------------------------------------
Automobiles & Trucks--2.3%
3,353,000 Lucas Varity PLC 11,721,057
- ------------------------------------------------------------
Banks & Financial Services--12.5%
245,800 Chase Manhattan Corp. 18,588,625
124,100 Citicorp 21,097,000
115,400 Merrill Lynch & Co., Inc. 11,251,500
94,000 Morgan (J.P.) & Co., Inc. 11,844,000
------------
62,781,125
- ------------------------------------------------------------
Chemicals--5.9%
213,000 Eastman Chemical Co. 12,087,750
310,800 Monsanto Co. 17,599,050
------------
29,686,800
- ------------------------------------------------------------
Computer Hardware--6.0%
388,000 Compaq Computer Corp.(a) 12,755,500
322,500 Compuware Corp.(a) 17,354,531
------------
30,110,031
- ------------------------------------------------------------
Computer Services--3.1%
584,300 Oracle Systems Corp.(a) 15,483,950
- ------------------------------------------------------------
Diversified Consumer Products--7.1%
772,000 Freeport-McMoRan Copper & Gold Inc. 10,952,750
155,000 Loews Corp. 12,496,875
279,000 Philip Morris Co., Inc. 12,223,688
------------
35,673,313
- ------------------------------------------------------------
Electronics--2.4%
421,000 AMP, Inc. $ 12,366,875
- ------------------------------------------------------------
Electronic Components--2.8%
242,500 Texas Instruments, Inc. 14,383,281
- ------------------------------------------------------------
Forest Products--4.8%
403,000 Mead Corp. 12,115,188
236,000 Temple-Inland, Inc. 12,286,750
------------
24,401,938
- ------------------------------------------------------------
Healthcare--7.4%
437,000 Columbia/HCA Healthcare Corp. 12,454,500
439,000 Tenet Healthcare Corp.(a) 13,142,562
193,000 Wellpoint Health Networks Inc. 11,833,313
------------
37,430,375
- ------------------------------------------------------------
Hotels--1.1%
218,000 Hilton Hotels Corp. 5,490,875
- ------------------------------------------------------------
Insurance--2.3%
255,400 SAFECO Corp. 11,508,962
- ------------------------------------------------------------
Networking--6.1%
295,300 Ascend Communications, Inc.(a) 13,131,622
185,000 Cisco Systems, Inc.(a) 17,713,750
------------
30,845,372
- ------------------------------------------------------------
Oil & Gas Exploration/Production--4.8%
177,000 Atlantic Richfield Co. 11,991,750
186,000 Societe Nationale Elf Aquitaine
(ADR) (France) 12,066,750
------------
24,058,500
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-48
<PAGE>
Portfolio of Investments as
of July 31, 1998 (Unaudited) PRUDENTIAL 20/20 FOCUS FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------
Pharmaceuticals--10.0%
237,500 Eli Lilly & Co. $ 15,971,875
171,500 Schering Plough Corp. 16,592,625
234,200 Warner-Lambert Co. 17,696,737
------------
50,261,237
- ------------------------------------------------------------
Restaurants--2.8%
211,600 McDonald's Corp. 14,137,525
- ------------------------------------------------------------
Retail--2.4%
354,000 Dillards Department Stores, Inc. 12,168,750
- ------------------------------------------------------------
Telecommunications--4.3%
413,900 WorldCom, Inc.(a) 21,884,963
- ------------------------------------------------------------
Telecommunications Equipment--3.1%
208,900 CIENA Corp.(a) 15,471,656
- ------------------------------------------------------------
Utilities--2.1%
291,000 General Public Utilities Corp. 10,403,250
------------
Total long-term investments
(cost $480,783,065) 473,821,179
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- -----------------------------------------------------------
SHORT-TERM INVESTMENTS--13.4%
- ------------------------------------------------------------
Commercial Paper--2.9%
$ 12,000 Chevron USA Inc.
5.55%, 8/3/98 $ 12,000,000
2,801 Ford Motor Credit Corp.
5.53%, 8/3/98 2,801,000
------------
Total commercial paper
(cost $14,801,000) 14,801,000
- ------------------------------------------------------------
U.S. Government Agency & Instrumentalities--4.6%
Federal Home Loan Mortgage Discount
Notes
23,000 5.56%, 8/3/98
(cost $22,992,895) 22,992,895
- ------------------------------------------------------------
Repurchase Agreement--5.9%
29,679 Joint Repurchase Agreement Account,
5.61%, 8/3/98 (Note 5)
(cost $29,679,000) 29,679,000
------------
Total short-term investments
(cost $67,472,895) 67,472,895
------------
- ------------------------------------------------------------
Total Investments--107.3%
(cost $548,255,960; Note 4) 541,294,074
Liabilities in excess of other
assets--(7.3%) (37,055,434)
------------
Net Assets--100% $504,238,640
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-49
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets July 31, 1998
---------------
<S> <C>
Investments, at value (cost $518,576,960)................................................................... $ 511,615,074
Joint repurchase account, at value (cost $29,679,000)....................................................... 29,679,000
Receivable for Fund shares sold............................................................................. 15,338,716
Dividends and interest receivable........................................................................... 434,033
Prepaid expenses and other assets........................................................................... 143,616
--------------
Total assets............................................................................................. 557,210,439
--------------
Liabilities
Bank overdraft.............................................................................................. 4,360,168
Payable for investments purchased........................................................................... 47,936,606
Distribution fee payable.................................................................................... 316,714
Management fee payable...................................................................................... 302,235
Accrued expenses............................................................................................ 56,076
--------------
Total liabilities........................................................................................ 52,971,799
--------------
Net Assets.................................................................................................. $ 504,238,640
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 511,322
Paid-in capital in excess of par......................................................................... 510,747,755
--------------
511,259,077
Undistributed net investment income...................................................................... 331,615
Accumulated net realized loss on investments............................................................. (393,100)
Net unrealized depreciation on investments............................................................... (6,958,952)
--------------
Net assets, July 31, 1998................................................................................... $ 504,238,640
--------------
--------------
Class A:
Net asset value and redemption price per share
($125,945,816 divided by 12,753,101 shares of beneficial interest issued and outstanding)............. $9.88
Maximum sales charge (5.00% of offering price)........................................................... .52
--------------
Maximum offering price to public......................................................................... $10.40
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($302,545,471 divided by 30,697,958 shares of beneficial interest issued and outstanding)............. $9.86
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($63,489,292 divided by 6,439,085 shares of beneficial interest issued and outstanding)............... $9.86
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($12,258,061 divided by 1,242,036 shares of beneficial interest issued and outstanding)............... $9.87
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-50
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
July 1, 1998(a)
Through
Net Investment Income July 31, 1998
----------------
<S> <C>
Income
Interest................................... $ 655,274
Dividends.................................. 484,978
----------------
Total income............................ 1,140,252
----------------
Expenses
Management fee............................. 302,235
Distribution fee--Class A.................. 25,417
Distribution fee--Class B.................. 239,770
Distribution fee--Class C.................. 51,526
Organizational expenses.................... 117,000
Registration fees.......................... 19,000
Amortization of prepaid offering cost...... 12,000
Reports to shareholders.................... 10,000
Transfer agent's fees and expenses......... 10,000
Custodian's fees and expenses.............. 10,000
Audit fee and expenses..................... 4,000
Legal fees and expenses.................... 4,000
Trustees' fees and expenses................ 1,000
Miscellaneous.............................. 2,689
----------------
Total expenses.......................... 808,637
----------------
Net investment income......................... 331,615
----------------
Realized and Unrealized Gain/Loss
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions.................... (495,139)
Foreign currency transactions.............. 102,039
----------------
(393,100)
----------------
Net change in unrealized depreciation on:
Investments and foreign currencies......... (6,958,952)
----------------
Net loss on investments....................... (7,352,052)
----------------
Net Decrease in Net Assets
Resulting from Operations..................... $ (7,020,437)
----------------
----------------
</TABLE>
- ---------------
(a) Commencement of investment operations
<TABLE>
PRUDENTIAL 20/20 FOCUS FUND
Statement of Changes in Net Assets (Unaudited)
<CAPTION>
July 1, 1998(a)
Increase in Through
Net Assets July 31, 1998
----------------
<S> <C>
Operations
Net investment income........................ $ 331,615
Net realized loss on investments and foreign
currencies................................ (393,100)
Net change in unrealized depreciation on
investments and foreign currencies........ (6,958,952)
----------------
Net decrease in net assets resulting from
operations................................ (7,020,437)
----------------
Fund share transactions (Note 6)
Proceeds from shares sold.................... 518,483,630
Cost of shares reacquired.................... (7,324,553)
----------------
Net increase in net assets from Fund share
transactions.............................. 511,159,077
----------------
Total increase.................................. 504,138,640
Net Assets
Beginning of period............................. 100,000
----------------
End of period................................... $504,238,640
----------------
----------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-51
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
Prudential 20/20 Focus Fund (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, open-end management investment
company. The investment objective of the Fund is long-term growth of capital.
The Fund invests primarily in up to 40 equity securities of U.S. companies that
are selected by the Fund's two investment advisers (up to 20 by each) as having
strong capital appreciation potential.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATION: Investments, including options, traded on a national
securities or commodities exchange and Nasdaq National Market equity securities
are valued at the last reported sales price on the primary exchange on which
they are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars. Foreign currency amounts are translated into United
States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at the
current rate of exchange.
(ii) purchases and sales of investment securities, income and expenses--at the
rates of exchange prevailing on the respective dates of such transactions.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid semi-annually. The Fund will distribute at least annually net capital
gains in excess of capital loss carryforwards, if any. Dividends and
distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
TAXES: It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable net income and net capital gains, if any, to its shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadvisers' performance of such
services. PIFM has entered into subadvisory agreements with The Prudential
Investment Corporation ("PIC") and Jennison Associates LLC ("Jennison"). Each
subadviser furnishes investment advisory services in connection with the
management of the Fund. PIFM pays for the cost of the subadviser's services, the
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses. Each
of the two Subadvisers manages approximately 50% of the assets of the Fund. In
general, in order to maintain an approximately equal division of assets between
the two Subadvisers, all daily cash inflows (i.e., subscriptions and reinvested
distributions) and outflows (i.e., redemptions and expense items) will be
divided between the two Subadvisers as PIFM deems it appropriate. In addition,
there will be
- --------------------------------------------------------------------------------
B-52
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
periodic rebalancing of each portfolio's assets to take account of market
fluctuations in order to maintain the approximately equal allocation. As a
consequence, each portfolio will allocate assets from the better performing of
the two Subadvisers to the other.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .75 of 1% of the Fund's average daily net assets. PIC is reimbursed by
PIFM for its reasonable costs and expenses incurred in providing services to a
portion of the Fund's assets. Jennison is compensated by PIFM for its services
at the rate of .30% of 1% of the Fund's average daily net assets for the portion
of such assets that Jennison manages up to and including $300 million and .25%
of 1% of such average daily net assets in excess of $300 million.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ("PIMS"), which acts as the distributor of the Class A, Class B,
Class C and Class Z shares of the Fund. The Fund compensates PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of distribution (the "Class A, B and C Plans"), regardless of
expenses actually incurred by them. The distribution fees for Class A, B and C
shares are accrued daily and payable monthly. No distribution or service fees
are paid to PIMS as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Class A, Class B and Class C Plans were .25%, 1% and 1%,
respectively, of the average daily net assets of Class A, Class B and Class C
shares for the period ended July 31, 1998.
PSI has advised the Fund that it has received approximately $8,117,187 in
front-end sales charges resulting from sales of Class A shares during the period
ended July 31, 1998. From these fees, PSI paid such sales charges to dealers
(PSI and PRUCO Securities Corporation (Prusec)), which in turn paid commissions
to salespersons.
PIFM, PIMS, PIC and Jennison are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America ("Prudential").
The Fund, along with other affiliated registered investment companies (the
"Funds"), has a credit agreement (the "Agreement") with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement during the period
ended July 31, 1998. The Funds pay a commitment fee at an annual rate of .055 of
1% on the unused portion of the credit facility. The commitment fee is accrued
and paid quarterly on a pro rata basis by the Funds. The Agreement expires on
December 29, 1998.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the period ended July 31, 1998,
the Fund incurred fees of approximately $10,000 for the services of PMFS. As of
July 31, 1998, approximately $10,000 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the period ended July 31, 1998, Prudential Securities Incorporated, an
indirect wholly owned subsidiary of Prudential earned $491,355 in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the period ended July 31, 1998 aggregated $506,964,616 and $25,686,412,
respectively.
The federal income tax basis of the Fund's investments at July 31, 1998 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized depreciation for federal income tax purposes was $6,958,952 (gross
unrealized appreciation--$10,128,177; gross unrealized
depreciation--$17,087,129).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Government or federal agency obligations. As of July 31, 1998, the Fund
had a 3.9% undivided interest in repurchase agreements in the joint account. The
undivided interest for the Fund represented $29,679,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefor was as follows:
Bear, Stearns & Co., 5.66%, dated 7/31/98, in the principal amount of
$175,000,000, repurchase price $175,082,542, due 8/3/98. The value of the
collateral including accrued interest is $179,027,728.
- --------------------------------------------------------------------------------
B-53
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 5.67%, dated 7/31/98, in the principal amount
of $175,000,000, repurchase price $175,082,689, due 8/3/98. The value of the
collateral including accrued interest is $180,594,823.
Salomon Smith Barney Inc., 5.64%, dated 7/31/98, in the principal amount of
$175,000,000, repurchase price $175,082,251, due 8/3/98. The value of the
collateral including accrued interest is $178,789,931.
SBC Warburg Dillon Read Inc., 5.52%, dated 7/31/98, in the principal amount of
$235,118,000, repurchase price $235,226,153, due 8/3/98. The value of the
collateral including accrued interest is $240,150,611.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualified to purchase Class A shares at net asset value. Class
Z shares are not subject to any sales charge and are offered exclusively for
sale to a limited group of investors.
There is an unlimited number of shares of beneficial interest, $.001 par value
per share, divided into four classes, designated Class A, Class B, Class C and
Class Z.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
July 1, 1998(a) through
July 31, 1998:
Shares sold.......................... 13,263,677 $132,519,671
Shares reacquired.................... (510,576) (5,105,571)
---------- ------------
Net increase in shares outstanding... 12,753,101 $127,414,100
---------- ------------
---------- ------------
<CAPTION>
Class B
- -------------------------------------
<S> <C> <C>
July 1, 1998(a) through
July 31, 1998:
Shares sold.......................... 30,841,171 $308,380,092
Shares reacquired.................... (143,213) (1,442,197)
---------- ------------
Net increase in shares outstanding... 30,697,958 $306,937,895
---------- ------------
---------- ------------
<CAPTION>
Class C
- -------------------------------------
<S> <C> <C>
July 1, 1998(a) through
July 31, 1998:
Shares sold.......................... 6,479,952 $ 64,795,539
Shares reacquired.................... (40,867) (408,876)
---------- ------------
Net increase in shares outstanding... 6,439,085 $ 64,386,663
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -------------------------------------
<S> <C> <C>
July 1, 1998(a) through
July 31, 1998:
Shares sold.......................... 1,279,001 $ 12,788,328
Shares reacquired.................... (36,965) (367,909)
---------- ------------
Net increase in shares outstanding... 1,242,036 $ 12,420,419
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class A, B, C and Z shares.
- --------------------------------------------------------------------------------
B-54
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
---------------- ----------------
July 1, 1998(a) July 1, 1998(a)
Through Through
July 31, July 31,
1998 1998
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................................... $ 10.00 $ 10.00
------- -------
Income from investment operations
Net investment income...................................................... .01 .01
Net realized and unrealized loss on investments and foreign currencies..... (.13) (.15)
------- -------
Total from investment operations........................................ (.12) (.14)
------- -------
Net asset value, end of period............................................. $ 9.88 $ 9.86
------- -------
------- -------
TOTAL RETURN(b):........................................................... (1.2)% (1.4)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................................ $125,946 $302,546
Average net assets (000)................................................... $123,697 $291,721
Ratios to average net assets:
Expenses, including distribution fees(c)................................ .92% 1.67%
Expenses, excluding distribution fees(c)................................ .67% .67%
Net investment income(c)................................................ 1.58% .83%
Portfolio turnover...................................................... 5% 5%
<CAPTION>
Class C Class Z
---------------- ----------------
July 1, 1998(a) July 1, 1998(a)
Through Through
July 31, July 31,
1998 1998
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................................... $ 10.00 $ 10.00
------ ------
Income from investment operations
Net investment income...................................................... .01 .03
Net realized and unrealized loss on investments and foreign currencies..... (.15) (.16)
------ ------
Total from investment operations........................................ (.14) (.13)
------ ------
Net asset value, end of period............................................. $ 9.86 $ 9.87
------ ------
------ ------
TOTAL RETURN(b):........................................................... (1.4)% (1.3)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................................ $ 63,489 $ 12,258
Average net assets (000)................................................... $ 62,690 $ 12,186
Ratios to average net assets:
Expenses, including distribution fees(c)................................ 1.67% .67%
Expenses, excluding distribution fees(c)................................ .67% .67%
Net investment income(c)................................................ .83% 1.83%
Portfolio turnover...................................................... 5% 5%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported. Total returns for periods of less than one
full year are not annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-55
<PAGE>
APPENDIX I--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.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
I-1
<PAGE>
APPENDIX II--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.
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
EDGAR REPRESENTATION OF CHART
VALUE OF $1.00 INVESTED
ON 1/1/26 THROUGH 12/31/98
SMALL STOCKS--$5,116.95
COMMON STOCKS--$2,350.89
LONG-TERM BONDS--$44.18
TREASURY BILLS--$14.94
INFLATION--$9.16
Source: Ibbotson Associates. Used with permission. All rights reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and the reinvestment of
gains. Bond returns are due mainly to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 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.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. 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).
II-1
<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 1988
through 1998. 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 "Risk/Return Summary--Fees and 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.
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
<CAPTION>
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0%
- ----------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0%
- ----------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT
GRADE
CORPORATE
BONDS(3) 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6%
- ----------------------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6%
- ----------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST
AND LOWEST RETURN
PERCENT 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.1 8.4
</TABLE>
(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. Data retrieved from Lipper Inc.
(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 SMITH BARNEY 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.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1998. It does not represent
the performance of any Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS (12/31/85 - 12/31/98)
IN U.S. DOLLARS
EDGAR REPRESENTATION OF CHART
<TABLE>
<S> <C>
BELGIUM 22.7%
SPAIN 22.5%
THE NETHERLANDS 20.8%
SWEDEN 19.9%
SWITZERLAND 18.3%
USA 18.1%
HONG KONG 17.8%
FRANCE 17.4%
UK 16.7%
GERMANY 13.4%
AUSTRIA 8.9%
JAPAN 6.5%
</TABLE>
Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. as of
12/31/98 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.
EDGAR REPRESENTATION OF CHART
CAPITAL APPRECIATION AND
REINVESTING DIVIDENDS--$391,707
CAPITAL APPRECIATION ONLY--$133,525
(1969-1998)
Source: Lipper Inc. 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.
WORLD STOCK MARKET CAPITALIZATION BY REGION
World Total: $15.8 Trillion
EDGAR REPRESENTATION OF CHART
CANADA--1.8%
US--51.0%
EUROPE--34.7%
PACIFIC BASIN--12.5%
Source: Morgan Stanley Capital International, December 31, 1998. 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 approximately
1577 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.
II-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1998)
[CHART]
Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1997. 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.
II-4
<PAGE>
APPENDIX III--INFORMATION RELATING TO 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 "How the Fund is Managed--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,
1997 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(1) 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,
1997. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and 6,500
domestic and international 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. 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 nearly 40 million people worldwide.
Long one of the largest issuers of life insurance, Prudential has 25 million
life insurance policies and group certificates in force today with a face value
of almost $1 trillion. Prudential has the largest capital base ($12.1 billion)
of any life insurance company in the United States. Prudential provides auto
insurance for more than 1.5 million cars and insures approximately 1.2 million
homes.
MONEY MANAGEMENT. 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. As of
December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $211 billion in assets of
institutions and individuals. In INSTITUTIONAL INVESTOR, July 1998, Prudential
was ranked eighth in terms of total assets under management as of December 31,
1997.
REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America and
has more than 37,000 real estate brokers with over more than 1,400 offices
across the United States.(2)
HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care
membership.(3)
FINANCIAL SERVICES. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of Prudential, has nearly $1 billion in assets and serves nearly 1.5
million customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of November 30, 1998, Prudential Investments Fund Management was the
eighteenth largest mutual fund company 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.
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.
- ------------------------
(1) 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 the subadviser
to Nicholas-Applegate Fund, Inc., Jennison Associates LLC as one of the
subadvisers to The Prudential Investment Portfolios, Inc. and Mercator Asset
Management LP as the subadviser to International Stock Series, a portfolio
of Prudential World Fund, Inc. There are multiple subadvisers for The Target
Portfolio Trust.
(2) As of December 31, 1997.
(3) On December 10, 1998, Prudential announced its intention to sell Prudential
Health Care to Aetna, Inc. for $1 billion.
III-1
<PAGE>
EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates LLC, 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 monitors
approximately 200 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.(4) 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. Investment grade bond analysts monitor the financial
viability of 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 trades billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers have 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.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.(5)
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 and financial planning
areas.
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.
- ------------------------
(4) As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.
(5) As of December 31, 1998.
III-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<C> <S> <C>
(a) (1) Agreement and Declaration of Trust. Incorporated by reference to Exhibit No.
1 to the Registration Statement on Form N-1A (File No. 333-43491) filed on
December 30, 1997.
(2) First Amendment to Agreement and Declaration of Trust. Incorporated by
reference to Exhibit No. 1(b) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 333-43491) filed on April 30, 1998.
(3) Certificate of Trust. Incorporated by reference to Exhibit No. 1(c) to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File
No. 333-43491) filed on April 30, 1998.
(4) First Amendment to Certificate of Trust. Incorporated by reference to Exhibit
No. 1(d) to Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A (File No. 333-43491) filed on April 30, 1998.
(b) By-Laws. Incorporated by reference to Exhibit No. 2 to the Registration Statement
on Form N-1A (File No. 333-43491) filed on December 30, 1997.
(c) Instruments defining rights of shareholders. Incorporated by reference to Exhibit
No. 4 to the Registration Statement on Form N-1A (File No. 333-43491) filed on
December 30, 1997.
(d) (1) Management Agreement between the Registrant and Prudential Investments Fund
Management LLC.*
(2) Subadvisory Agreement between Prudential Investments Fund Management LLC and
The Prudential Investment Corporation.*
(3) Subadvisory Agreement between Prudential Investments Fund Management LLC and
Jennison Associates LLC.*
(e) (1) Distribution Agreement between the Registrant and Prudential Investment
Management Services LLC.*
(2) Form of Selected Dealer Agreement.*
(g) Custodian Contract between the Registrant and State Street Bank and Trust
Company. Incorporated by reference to Exhibit No. 8 to the Registration Statement
on Form N-1A (File No. 333-43491) filed on December 30, 1997.
(h) (1) Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services LLC.*
(2) Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File
No. 333-43491) filed on April 30, 1998.
(i) Opinion of Gardner, Carton & Douglas. Incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File
No. 333-43491) filed on April 30, 1998.
(m) (1) Amended and Restated Distribution and Service Plan for Class A Shares.*
(2) Amended and Restated Distribution and Service Plan for Class B Shares.*
(3) Amended and Restated Distribution and Service Plan for Class C Shares.*
(n) Financial Data Schedules.*
(o) Amended and Restated Rule 18f-3 Plan.*
</TABLE>
- ------------------------
* Filed herewith.
C-1
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act) and pursuant to Del. Code Ann. title 12 sec. 3817, a
Delaware business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article VII, Section 2 of the Agreement and Declaration
of Trust (Exhibit (a)(1) to Registration Statement) states that (i) the
Registrant shall indemnify any present trustee or officer to the fullest extent
permitted by law against liability, and all expenses reasonably incurred by him
or her in connection with any claim, action, suit or proceeding in which he or
she is involved by virtue of his or her service as a trustee, officer or both,
and against any amount incurred in settlement thereof and (ii) all persons
extending credit to, contracting with or having any claim against the Registrant
shall look only to the assets of the appropriate Series (or if no Series has yet
been established, only to the assets of the Registrant). Indemnification will
not be provided to a person adjudged by a court or other adjudicatory body to be
liable to the Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of his or her duties
(collectively "disabling conduct"). In the event of a settlement, no
indemnification may be provided unless there has been a determination, as
specified in the Declaration of Trust, that the officer or trustee did not
engage in disabling conduct. In addition, Article XI of Registrant's By-Laws
(Exhibit (b) to the Registration Statement) provides that any trustee, officer,
employee or other agent of Registrant shall be indemnified by the Registrant
against all liabilities and expenses subject to certain limitations and
exceptions contained in Article XI of the By-Laws. As permitted by Section 17(i)
of the 1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit
(e)(1) to the Registration Statement), the 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, as amended (Securities Act) may be permitted to trustees, 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 trustee, 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
trustee, 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 has purchased an insurance policy insuring its officers and
trustees against liabilities, and certain costs of defending claims against such
officers and trustees, to the extent such officers and trustees 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 (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreements (Exhibits (d)(2) and (3)
to the Registration Statement) limit the liability of Prudential Investments
Fund Management LLC (PIFM) and The Prudential Investment Corporation (PIC) and
Jennison Associates LLC, 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.
C-2
<PAGE>
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, Declaration of Trust and the 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 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 Declaration of Trust, 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Prudential Investments Fund Management LLC (PIFM)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" in
the Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM 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 PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
Robert F. Gunia Executive Vice President and Vice President, Prudential Investments; Executive Vice
Treasurer President and Treasurer, PIFM; Senior Vice President
of Prudential Securities
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
Neil A. McGuiness Executive Vice President Executive Vice President and Director of Marketing,
Prudential Mutual Funds & Annuities (PMF&A); Executive
Vice President, PIFM
Brian M. Storms Officer-In-Charge, President, Chief President, PMF&A; Officer-In-Charge, President, Chief
Executive Officer and Chief Executive Officer and Chief Operating Officer, PIFM
Operating Officer
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice
President, PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Investment Advisers" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services" 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. The address of each person is Prudential Plaza, Newark,
NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, President, Chief Executive Officer of Prudential Investments of
Chief Executive Officer and Director The Prudential Insurance Company of America
(Prudential)
John R. Strangfeld, Jr. Vice President and Director President of Private Asset Management Group of
Prudential; Senior Vice President, Prudential; Vice
President and Director, PIC
</TABLE>
(c) Jennison Associates LLC (Jennison)
See "How the Fund is Managed--Investment Advisers" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services" in the Statement of Additional Information constituting Part B
of this Registration Statement.
C-4
<PAGE>
The business and other connections of Jennison directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is 466 Lexington Avenue, New York, NY 10017.
Information as to Jennison's directors and executive officers is included in
its Form ADV filed with the Securities and Exchange Commission (File No.
801-5608), as most recently amended, the text of which is incorporated herein by
reference.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH JENNISON PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
Blair A. Boyer Senior Vice President and Director Senior Vice President and Director, Jennison
Cecilia M. Brancato Senior Vice President and Director Senior Vice President and Director, Jennison
Robert B. Corman Senior Vice President and Director Senior Vice President and Director, Jennison
Michael A. Del Balso Senior Vice President, Director of Senior Vice President, Director of Internal Research,
Internal Research and Director and Director, Jennison
Thomas F. Doyle Executive Vice President and Executive Vice President and Director, Jennison
One Financial Center Director
Boston, MA 02111
Joseph P. Ferrugio Senior Vice President and Director Senior Vice President and Director, Jennison
Bradley L. Goldberg Executive Vice President and Executive Vice President and Director, Jennison
Director
John H. Hobbs Chairman and Chief Executive Officer Chairman and Chief Executive Officer and Director,
and Director Jennison
James N. Kannry Senior Vice President, Treasurer and Senior Vice President, Treasurer and Director,
Director Jennison
Karen E. Kohler Senior Vice President, Chief Senior Vice President, Chief Compliance Officer,
Compliance Officer, Secretary and Secretary and Director, Jennison
Director
Jonathan R. Longley Executive Vice President and Executive Vice President and Director, Jennison
One Financial Center Director
Boston, MA 02111
Philip H.B. Moss Executive Vice President and Executive Vice President and Director, Jennison
Director
Michael H. Porreca Senior Vice President and Director Senior Vice President and Director, Jennison
One Financial Center
Boston, MA 02111
Peter H. Reinemann Senior Vice President and Director Senior Vice President and Director, Jennison
Spiros Segalas President, Chief Investment Officer President, Chief Investment Officer and Director,
and Director Jennison; Director, JACC Services Corp.
Catherine D. Wood Senior Vice President and Director Senior Vice President and Director, Jennison
</TABLE>
C-5
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Prudential Investment Management Services (PIMS)
PIMS is distributor for Cash Accumulation Trust, Command Money Fund, Command
Government Fund, Command Tax-Free Fund, The Global Total Return Fund, Inc.,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund), Prudential Balanced Fund, Prudential California Municipal
Fund, Prudential Distressed Securities Fund, Inc., Prudential Diversified Bond
Fund, Inc., 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 High Yield Total Return Fund, Inc.,
Prudential Index Series Fund, Prudential Institutional Liquidity Portfolio,
Inc., Prudential Intermediate Global Income Fund, Inc., Prudential International
Bond Fund, Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets,
Inc., Prudential Mortgage Income 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 Real Estate Securities Fund, Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Managed Equity
Fund, Prudential 20/20 Focus Fund, Prudential Utility Fund, Inc., Prudential
World Fund, Inc. The Prudential Investment Portfolios, 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 PIMS is set forth
below:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME (1) UNDERWRITER REGISTRANT
- ---------------------------------- ---------------------------------- ---------------------
<S> <C> <C>
E. Michael Caulfield.............. President None
Mark R. Fetting................... Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Jean D. Hamilton.................. Executive Vice President None
Ronald P. Joelson................. Executive Vice President None
Brian M. Storms................... Executive Vice President President and Trustee
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
John R. Strangfeld, Jr............ Executive Vice President None
Mario A. Mosse.................... Senior Vice President and Chief None
Operating Officer
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME (1) UNDERWRITER REGISTRANT
- ---------------------------------- ---------------------------------- ---------------------
<S> <C> <C>
Scott S. Wallner.................. Vice President, Secretary and None
Chief Legal Officer
Michael G. Williamson............. Vice President, Comptroller and None
Chief Financial Officer
C. Edward Chaplin................. Treasurer None
</TABLE>
- ------------------------
(1) The address of each person named is 751 Broad Street, Newark, New Jersey
07102-4077 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 28. 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, Jennison Associates LLC, 466 Lexington Avenue, New York,
New York 10017, The Prudential Investment Corporation, Prudential Plaza, 751
Broad Street, Newark, New Jersey 07102, the Registrant, Gateway Center Three,
Newark, New Jersey 07102-4077, and Prudential Mutual Fund Services LLC, Raritan
Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-1(b)(5),
(6), (7), (9), (10) and (11), 31a-1(f), 31a-1(b)(4) and (11) and 31a-1(d) will
be kept at Gateway Center Three, 100 Mulberry Street Street, 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 LLC.
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed-- Investment Advisers" in the
Prospectus and the captions "Investment Advisory and Other Services" 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 30. UNDERTAKING.
Not applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund has duly caused this Post-Effective
Amendment to the Registration Statement to be signed by the undersigned, duly
authorized, in the City of Newark, and State of New Jersey, on the 23rd day of
February, 1999.
PRUDENTIAL 20/20 FOCUS FUND
By /s/ BRIAN M. STORMS
------------------------------------------
Brian M. Storms,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ EDWARD D. BEACH
- ------------------------------ Trustee February 23, 1999
Edward D. Beach
/s/ DELAYNE DEDRICK GOLD
- ------------------------------ Trustee February 23, 1999
Delayne Dedrick Gold
/s/ ROBERT F. GUNIA
- ------------------------------ Trustee February 23, 1999
Robert F. Gunia
/s/ DOUGLAS H. MCCORKINDALE
- ------------------------------ Trustee February 23, 1999
Douglas H. McCorkindale
/s/ MENDEL A. MELZER
- ------------------------------ Trustee February 23, 1999
Mendel A. Melzer
/s/ THOMAS T. MOONEY
- ------------------------------ Trustee February 23, 1999
Thomas T. Mooney
/s/ STEPHEN P. MUNN
- ------------------------------ Trustee February 23, 1999
Stephen P. Munn
/s/ RICHARD A. REDEKER
- ------------------------------ Trustee February 23, 1999
Richard A. Redeker
/s/ ROBIN B. SMITH
- ------------------------------ Trustee February 23, 1999
Robin B. Smith
/s/ BRIAN M. STORMS
- ------------------------------ President and Trustee February 23, 1999
Brian M. Storms
/s/ LOUIS A. WEIL, III
- ------------------------------ Trustee February 23, 1999
Louis A. Weil, III
/s/ CLAY T. WHITEHEAD
- ------------------------------ Trustee February 23, 1999
Clay T. Whitehead
/s/ GRACE C. TORRES Treasurer and Principal
- ------------------------------ Financial February 23, 1999
Grace C. Torres and Accounting Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
(a) (1) Agreement and Declaration of Trust. Incorporated by reference to Exhibit No. 1 to the
Registration Statement on Form N-1A (File No. 333-43491) filed on December 30, 1997.
(2) First Amendment to Agreement and Declaration of Trust. Incorporated by reference to Exhibit No.
1(b) to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 333-43491)
filed on April 30, 1998.
(3) Certificate of Trust. Incorporated by reference to Exhibit No. 1(c) to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A (File No. 333-43491) filed on April 30, 1998.
(4) First Amendment to Certificate of Trust. Incorporated by reference to Exhibit No. 1(d) to Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 333-43491) filed on
April 30, 1998.
(b) By-Laws. Incorporated by reference to Exhibit No. 2 to the Registration Statement on Form N-1A (File
No. 333-43491) filed on December 30, 1997.
(c) Instruments defining rights of shareholders. Incorporated by reference to Exhibit No. 4 to the
Registration Statement on Form N-1A (File No. 333-43491) filed on December 30, 1997.
(d) (1) Management Agreement between the Registrant and Prudential Investments Fund Management LLC.*
(2) Subadvisory Agreement between Prudential Investments Fund Management LLC and The Prudential
Investment Corporation.*
(3) Subadvisory Agreement between Prudential Investments Fund Management LLC and Jennison Associates
LLC.*
(e) (1) Distribution Agreement between the Registrant and Prudential Investment Management Services LLC.*
(2) Form of Selected Dealer Agreement.*
(g) Custodian Contract between the Registrant and State Street Bank and Trust Company. Incorporated by
reference to Exhibit No. 8 to the Registration Statement on Form N-1A (File No. 333-43491) filed on
December 30, 1997.
(h) (1) Transfer Agency and Service Agreement between the Registrant and Prudential Mutual Fund Services
LLC.*
(2) Purchase Agreement. Incorporated by reference to Exhibit No. 13 to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A (File No. 333-43491) filed on April 30, 1998.
(i) Opinion of Gardner, Carton & Douglas. Incorporated by reference to Exhibit No. 10 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A (File No. 333-43491) filed on April 30,
1998.
(m) (1) Amended and Restated Distribution and Service Plan for Class A Shares.*
(2) Amended and Restated Distribution and Service Plan for Class B Shares.*
(3) Amended and Restated Distribution and Service Plan for Class C Shares.*
(n) Fianancial Data Schedules.*
(o) Amended and Restated Rule 18f-3 Plan.*
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
MANAGEMENT AGREEMENT
Agreement made this 27th day of April, 1998, between Prudential 20/20
Focus Fund (the Trust), and Prudential Investments Fund Management LLC, a New
York limited liability company (the Manager).
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
1940 Act); and
WHEREAS, the Trust desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the Trust and the
Trust also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day business affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Trust hereby appoints the Manager to act as manager of the Trust
and administrator of its business 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 subadvisory agreements with The Prudential
Investment Corporation (PIC) and Jennison Associates LLC (Jennison) pursuant to
which PIC and Jennison, respectively, shall furnish to the Trust the investment
advisory services in connection
<PAGE>
with the management of the Trust (the Subadvisory Agreements). The Manager will
continue to have responsibility for all investment advisory services furnished
pursuant to the Subadvisory Agreements.
2. Subject to the supervision of the Board of Trustees of the Trust, the
Manager shall administer the Trust's business affairs and, in connection
therewith, shall furnish the Trust with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreements, the Manager shall manage the
investment operations of the Trust and the composition of the Trust's portfolio,
including the purchase, retention and disposition thereof, in accordance with
the Trust'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 Trust's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Trust, 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 Declaration of Trust
and By-Laws of the Trust and the Prospectus (hereinafter defined) of the
Trust and with the instructions and directions of the Board of Trustees of
the Trust and will conform to and comply with the requirements of the 1940
Act and all other applicable federal and state laws and regulations.
2
<PAGE>
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by the Trust and will place orders pursuant to its
determinations 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 Trust's Registration Statement and the Prospectus
(hereinafter defined) or as the Board of Trustees may direct from time to
time. In providing the Trust 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 Trust's investment transaction business. It
is also understood that it is desirable for the Trust 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 Trust than may result when allocating brokerage to other brokers or
futures commission merchants on the basis of seeking the most favorable
price and efficient
3
<PAGE>
execution. Therefore, the Manager is authorized to pay higher brokerage
commissions for the purchase and sale of securities and futures contracts
for the Trust to brokers or futures commission merchants who provide such
research and analysis, subject to review by the Trust's Board of Trustees
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 Trust 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 Trust and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the Trust's portfolio transactions and shall render to the Trust's Board of
Trustees 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 Trust (including those being maintained by
the
4
<PAGE>
Trust's Custodian).
(f) The Manager shall provide the Trust's Custodian on each business
day with information relating to all transactions concerning the Trust's
assets.
(g) The investment management services of the Manager to the Trust
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Trust 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) Agreement and Declaration of Trust, as registered pursuant to a
Certificate of Business Trust filed with the Secretary of State of Delaware
(such a Declaration of Trust, as in effect on the date hereof and as
amended from time to time, is herein called the "Declaration of Trust");
(b) By-Laws of the Trust (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 Trustees of the Trust
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 Trust and its shares of beneficial interest and all amendments thereto;
(e) Notification of Registration of the Trust under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
5
<PAGE>
(f) Prospectus of the Trust (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 who may be elected as trustees or officers of the Trust 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 Trust'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 Trust are the property of the Trust and it
will surrender promptly to the Trust any such records upon the Trust'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 Trust and the
Manager except the fees and expenses of trustees who are not affiliated
persons of the Manager or the Trust's investment advisers,
(ii) all expenses incurred by the Manager or by the Trust in
connection with managing the ordinary course of the Trust's business other
than those assumed
6
<PAGE>
by the Trust herein, and
(iii) the costs and expenses payable to PIC and Jennison pursuant to
the Subadvisory Agreements.
The Trust assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Trust in connection with
the management of the investment and reinvestment of the Trust's assets,
(b) the fees and expenses of trustees who are not affiliated persons
of the Manager or the Trust's investment advisers,
(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 Trust 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 Trust pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the Trust, including the
cost of any pricing service or services which may be retained pursuant to
the authorization of the Board of Trustees of the Trust, and (iv) for both
mail and wire orders, the cashiering function in connection with the
issuance and redemption of the Trust's securities,
(d) the fees and expenses of the Trust'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
7
<PAGE>
accountants for the Trust,
(f) brokers' commissions and any issue or transfer taxes chargeable
to the Trust in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Trust to federal,
state or other governmental agencies,
(h) the fees of any trade associations of which the Trust may be a
member,
(i) the cost of share certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the Trust,
(j) the cost of fidelity, trustees and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Trust and of its shares with the Securities and
Exchange Commission, registering the Trust as a broker or dealer and paying
notice filings under state securities laws, including the preparation and
printing of the Trust'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 trustees' 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
8
<PAGE>
expenses not incurred in the ordinary course of the Trust's business, and
(n) any expenses assumed by the Trust pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
7. For the services provided and the expenses assumed pursuant to
this Agreement, the Trust will pay to the Manager as full compensation therefor
a fee at an annual rate of .75 of 1% of the Trust'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 Trust
pursuant to paragraph 7 shall be made monthly. Any such reductions or payments
are subject to readjustment during the year.
8. The Manager shall not be liable for any error of judgment or for
any loss suffered by the Trust 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.
9. 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 Trust at any
time, without the payment of
9
<PAGE>
any penalty, by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Trust, 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).
10. Nothing in this Agreement shall limit or restrict the right of
any officer or employee of the Manager who may also be a trustee, officer or
employee of the Trust 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.
11. Except as otherwise provided herein or authorized by the Board of
Trustees of the Trust 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 Trust in any way or otherwise be deemed an agent of the
Trust.
12. During the term of this Agreement, the Trust 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 Trust 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
this Agreement, the Trust will continue to furnish
10
<PAGE>
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 Trust shall furnish or otherwise make available to the Manager
such other information relating to the business affairs of the Trust as the
Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.
13. This Agreement may be amended by mutual consent, but the consent
of the Trust must be obtained in conformity with the requirements of the 1940
Act.
14. 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
Trust at Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102-4077,
Attention: President.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. The Trust may use the name "Prudential 20/20 Focus Fund" 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
Trust will (to the extent that it lawfully can) cease to use such a name or any
other name indicating that
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<PAGE>
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 Trust use the name "Prudential 20/20 Focus Fund" 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 20/20 FOCUS FUND
By: /s/ Richard A. Redeker
------------------------
Richard A. Redeker
President
PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC
By: /s/ Robert F. Gunia
------------------------
Robert F. Gunia
Executive Vice President
12
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
SUBADVISORY AGREEMENT
Agreement made as of this 27th day of April, 1998 between Prudential
Investments Fund Management LLC, a New York limited liability company (PIFM or
the Manager), and The Prudential Investment Corporation, a New Jersey
Corporation (the Subadviser).
WHEREAS, the Manager has entered into a Management Agreement, dated
April 27, 1998 (the Management Agreement), with Prudential 20/20 Focus Fund (the
Trust), a Delaware business trust and a non-diversified open-end management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), pursuant to which PIFM will act as Manager of the Trust.
WHEREAS, PIFM desires to retain the Subadviser to provide investment
advisory services to the Trust in connection with the management of a portion of
the portfolio of the Trust 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
Trustees of the Trust, the Subadviser shall manage the investment
operations of a portion of the portfolio of the Trust and the composition
of a portion of the Trust's portfolio, including the purchase, retention
and disposition thereof, in accordance with the Trust'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 a portion of
the Trust's investments and determine from time to time what
investments and securities will be purchased, retained, sold or loaned
by the Trust, 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 Declaration
of Trust, By-Laws and Prospectus of the Trust and with the
instructions and directions of the Manager and of the Board of
Trustees of the Trust and will conform to and comply with the
requirements of the 1940 Act, the
1
<PAGE>
Internal Revenue Code of 1986 and all other applicable federal and
state laws and regulations.
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by a portion of the Trust 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 Trust's Registration Statement and
Prospectus or as the Board of Trustees may direct from time to time.
In providing the Trust 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 Trust's investment transaction business. It is also
understood that it is desirable for the Trust 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 Trust
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 Trust
with such brokers or futures commission merchants, subject to review
by the Trust's Board of Trustees 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
Trust 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
2
<PAGE>
the manner the Subadviser considers to be the most equitable and
consistent with its fiduciary obligations to the Trust and to such
other clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Trust'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 Trust's Board
of Trustees such periodic and special reports as the trustees may
reasonably request.
(v) The Subadviser shall provide the Trust's Custodian on each
business day with information relating to all transactions concerning
its portion of the Trust'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 trustees or officers of the
Trust 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 Trust'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 Trust required by Rule 31a-1 under the 1940 Act. The
Subadviser agrees that all records which it maintains for the Trust are the
property of the Trust and the Subadviser will surrender promptly to the
Trust any of such records upon the Trust'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 Trust pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
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<PAGE>
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 Trust 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 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 Trust
at any time, without the payment of any penalty, by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Trust, 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
trustee, officer or employee of the Trust 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 shareholders, sales literature or other material prepared for
distribution to shareholders of the Trust 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 Trust must be obtained in conformity with the requirements of the 1940
Act.
4
<PAGE>
9. This Agreement shall be governed by the laws of the State of New York.
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 INVESTMENTS FUND MANAGEMENT LLC
BY: /s/ Robert F. Gunia
---------------------------------
Robert F. Gunia
Executive Vice President
THE PRUDENTIAL INVESTMENT CORPORATION
BY: /s/ Mendel A. Melzer
---------------------------------
Mendel A. Melzer
Vice President
5
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
SUBADVISORY AGREEMENT
Agreement made as of this 27th day of April, 1998 between Prudential
Investments Fund Management LLC, a New York limited liability company (PIFM or
the Manager), and Jennison Associates LLC, a New York limited liability company
(the Subadviser).
WHEREAS, the Manager has entered into a Management Agreement, dated
April 27, 1998 (the Management Agreement), with Prudential 20/20 Focus Fund (the
Trust), a Delaware business trust and a non-diversified open-end management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), pursuant to which PIFM will act as Manager of the Trust.
WHEREAS, PIFM desires to retain the Subadviser to provide investment
advisory services to the Trust in connection with the management of a portion of
the portfolio of the Trust 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
Trustees of the Trust, the Subadviser shall manage the investment
operations of a portion of the portfolio of the Trust and the composition
of a portion of the Trust's portfolio, including the purchase, retention
and disposition thereof, in accordance with the Trust'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 a portion of
the Trust's investments and determine from time to time what
investments and securities will be purchased, retained, sold or loaned
by the Trust, 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 Declaration
of Trust, By-Laws and Prospectus of the Trust and with the
instructions and directions of the Manager and of the Board of
Trustees of the Trust and will conform to and comply with the
requirements of the 1940 Act, the
1
<PAGE>
Internal Revenue Code of 1986 and all other applicable federal and
state laws and regulations.
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by a portion of the Trust 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 Trust's Registration Statement and
Prospectus or as the Board of Trustees may direct from time to time.
In providing the Trust 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 Trust's investment transaction business. It is also
understood that it is desirable for the Trust 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 Trust
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 Trust
with such brokers or futures commission merchants, subject to review
by the Trust's Board of Trustees 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
Trust 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
2
<PAGE>
consistent with its fiduciary obligations to the Trust and to such
other clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Trust'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 Trust's Board
of Trustees such periodic and special reports as the trustees may
reasonably request.
(v) The Subadviser shall provide the Trust's Custodian on each
business day with information relating to all transactions concerning
its portion of the Trust'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 trustees or officers of the
Trust 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 Trust'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 Trust required by Rule 31a-1 under the 1940 Act. The
Subadviser agrees that all records which it maintains for the Trust are the
property of the Trust and the Subadviser will surrender promptly to the
Trust any of such records upon the Trust'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 Trust pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
3. For the services provided in this Agreement, the Manager will pay to
the Subadviser as full compensation therefor a fee at an annual rate of
.30% of
3
<PAGE>
the Trust's average daily net assets for the portion of such assets for
which services are provided by the Subadviser up to and including $300
million, and .25% of the Trust's average daily net assets in excess of $300
million. This fee will be computed daily and paid to the Subadviser
monthly.
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Trust 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 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 Trust
at any time, without the payment of any penalty, by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Trust, 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
trustee, officer or employee of the Trust 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 shareholders, sales literature or other material prepared for
distribution to shareholders of the Trust 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.
4
<PAGE>
8. This Agreement may be amended by mutual consent, but the consent of
the Trust 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.
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 INVESTMENTS FUND MANAGEMENT LLC
BY: /s/ Robert F. Gunia
---------------------------
Robert F. Gunia
Executive Vice President
JENNISON ASSOCIATES LLC
BY: /s/ Karen E. Kohler
--------------------------
Karen E. Kohler
Executive Vice President
5
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
DISTRIBUTION AGREEMENT
Agreement made as of June 1, 1998, between Prudential 20/20 Focus Fund
(the Fund), and Prudential Investment Management Services LLC, a Delaware
limited liability company (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a non-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, the Fund has adopted 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
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<PAGE>
the conditions in Section 4.3 hereof or at such other times as may be determined
by the Board. The Fund shall also have the right to suspend the sale of any or
all classes and/or series of its Shares if a banking moratorium shall have been
declared by federal or New Jersey 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 Declaration of Trust 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.
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<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 and the shareholders, all necessary action 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 notify such states as the
Distributor and the Fund may approve of its intention to sell any appropriate
number of its Shares; provided that the Fund shall not be required to amend its
Declaration of Trust 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 notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification 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 notifications.
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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 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 Securities Exchange Act Rule 10b-10 and the rules 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 or are institutions exempt from
registration under applicable federal securities laws. 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. 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 Rule 2830 of the Conduct Rules
of the NASD.
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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 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 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,
financial institutions and investment advisers 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 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 making notice
filings for 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 notification therein until the Fund decides to
discontinue such notification 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.
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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, members 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 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 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, member 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 Trustees 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 members 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
members, 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 Trustees 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 Trustees 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
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Trustees 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 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 Trustees 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 Trustees or
any such controlling person, such notification being given to the Distributor at
its principal business office.
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 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 Trustees 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 Trustees), 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 Trustees 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 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 Trustees cast in
person at a meeting called for the purpose of voting on such amendment.
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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 Jersey 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 Jersey, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Investment Management Services LLC
By: /s/ Brian M. Storms
--------------------------
Brian M. Storms
Executive Vice President
Prudential 20/20 Focus Fund
By: /s/ Robert F. Gunia
--------------------------
Robert F. Gunia
Vice President
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DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and
_________________ ("Dealer") have agreed that Dealer will participate in the
distribution of shares ("Shares") of all the funds and series thereof (as they
may exist from time to time) comprising the Prudential Mutual Fund Family (each
a "Fund" and collectively the "Funds") and any classes thereof for which
Distributor now or in the future serves as principal underwriter and
distributor, subject to the terms of this Dealer Agreement ("Agreement"). Any
such additional Funds will be included in this Agreement upon Distributor's
written notification to Dealer.
1. LICENSING
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners,
directors, officers, employees, and agents who will be utilized by Dealer with
respect to its duties and activities under this Agreement is either
appropriately licensed or exempt from such licensing requirements by the
appropriate regulatory agency of each state or other jurisdiction in which
Dealer will offer and sell Shares of the Funds.
c. Dealer agrees that: (i) termination or suspension of its
registration with the SEC; (ii) termination or suspension of its membership with
the NASD; or (iii) termination or suspension of its license to do business by
any state or other jurisdiction or federal regulatory agency shall immediately
cause the termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to
the Conduct Rules of the NASD and such Conduct Rules shall control any provision
to the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable
state and federal laws and all rules and regulations promulgated thereunder
generally affecting the sale or distribution of mutual fund shares.
2. ORDERS
a. Dealer agrees to offer and sell Shares of the Funds (including
those of each of its classes) only at the regular public offering price
applicable to such Shares and in effect at the time of each transaction. The
procedures relating to all orders and the handling of each order (including the
manner of computing the net asset value of Shares and the effective time of
orders received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of
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additional information (including any supplements, stickers or amendments
thereto) relating to each Fund, as filed with the SEC ("Prospectus"); (ii) the
new account application for each Fund, as supplemented or amended from time to
time; and (iii) Distributor's written instructions and multiple class pricing
procedures and guidelines, as provided to Dealer from time to time. To the
extent that the Prospectus contains provisions that are inconsistent with this
Agreement or any other document, the terms of the Prospectus shall be
controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is
not authorized to act as broker or agent for, or employee of, Distributor, any
Fund or any other dealer, and Dealer shall not in any manner represent to any
third party that Dealer has such authority or is acting in such capacity.
Rather, Dealer agrees that it is acting as principal for Dealer's own account or
as agent on behalf of Dealer's customers in all transactions in Shares, except
as provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if
the NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. DUTIES OF DEALER
a. Dealer agrees to purchase Shares only from Distributor or from
Dealer's customers.
b. Dealer agrees to enter orders for the purchase of Shares only
from Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
c. Dealer agrees to date and time stamp all orders received by
Dealer and promptly, upon receipt of any and all orders, to transmit to
Distributor all orders received prior to
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the time described in the Prospectus for the calculation of each Fund's net
asset value so as to permit Distributor to process all orders at the price next
determined after receipt by Dealer, in accordance with the Prospectus. Dealer
agrees not to withhold placing orders for Shares with Distributor so as to
profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of
Shares made through Dealer and to furnish Distributor or regulatory authorities
with copies of such records upon request. In that regard, Dealer agrees that,
unless Dealer holds Shares as nominee for its customers or participates in the
NSCC Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its
customers Prospectuses, proxy solicitation materials and related information and
proxy cards, semi-annual and annual shareholder reports and any other materials
in compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor
shall be in Fed Funds, New York clearinghouse or other immediately available
funds and that such funds shall be received by Distributor by the earlier of:
(i) the end of the third (3rd) business day following Dealer's receipt of the
customer's order to purchase such Shares; or (ii) the settlement date
established in accordance with Rule 15c6-1 under the Securities Exchange Act of
1934, as amended. If such payment is not received by Distributor by such date,
Dealer shall forfeit its right to any concession or commission with respect to
such order, and Distributor reserves the right, without notice, forthwith to
cancel the sale, or, at its option, to sell the Shares ordered back to the Fund,
in which case Distributor may hold Dealer responsible for any loss, including
loss of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.
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h. Dealer agrees that it: (i) shall assume responsibility for any
loss to the Fund caused by a correction to any order placed by Dealer that is
made subsequent to the trade date for the order, provided such order correction
was not based on any negligence on Distributor's part; and (ii) will immediately
pay such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the purchase of
Shares on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by
mail, telephone, or wire, Dealer shall act as agent for the custodian or trustee
of such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan. Dealer agrees
to indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.
j. Dealer agrees that it will not make any conditional orders for
the purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
l. Dealer agrees that it will keep in force appropriate broker's
blanket bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
4. DEALER COMPENSATION
a. On each purchase of Shares by Dealer from Distributor, the total
sales charges and dealer concessions or commissions, if any, payable to Dealer
shall be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must
be notified at the time of the sale that the sale qualifies for the reduced
sales charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for Shares of another Fund, or class thereof, having the same sales
charge structure as the Fund, or class thereof, from which the exchange was
made, in accordance with the Prospectus.
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b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares
purchased in a Qualifying Sale are redeemed within twelve (12) months of the end
of the month of purchase, Distributor shall be entitled to recover any advance
payment attributable to the redeemed Shares by reducing any account payable or
other monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which
distribution plans have been adopted under Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Rule 12b-1 Plans"), Distributor also is
authorized to pay the Dealer continuing distribution and/or service fees, as
specified in Schedule A and the relevant Fund Prospectus, with respect to Shares
of any such Fund, to the extent that Dealer provides distribution, marketing,
administrative and other services and activities regarding the promotion of such
Shares and the maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or
service fees under Rule 12b-1 Plans applicable to Shares purchased by Dealer's
customers, Distributor directs Dealer to provide enhanced shareholder services
such as: processing purchase and redemption transactions; establishing
shareholder accounts; and providing certain information and assistance with
respect to the Funds. (Redemption levels of shareholder accounts assigned to
Dealer will be considered in evaluating Dealer's continued ability to receive
payments of distribution and/or service fees.) In addition, Dealer agrees to
support Distributor's marketing efforts by, among other things, granting
reasonable requests for visits to Dealer's office by Distributor's wholesalers
and marketing representatives, including all Funds covered by a Rule 12b-1 Plan
on Dealer's "approved," "preferred" or other similar product lists, if
applicable, and otherwise providing satisfactory product, marketing and sales
support. Further, Dealer agrees to provide Distributor with supporting
documentation concerning the shareholder services provided, as Distributor may
reasonably request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be
based on the value of Shares attributable to Dealer's customers and eligible for
such payment, and shall be calculated on the basis of and at the rates set forth
in the compensation schedule then in effect. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees paid to
Dealer pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's Prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule 12b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).
f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer
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hereby acknowledges that all payments under Rule 12b-1 Plans are subject to
limitations contained in such Rule 12b-1 Plans and may be varied or discontinued
at any time.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
a. The Prospectus for each Fund describes the provisions whereby the
Fund, under all ordinary circumstances, will redeem Shares held by shareholders
on demand. Dealer agrees that it will not make any representations to
shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
deferred sales charge or redemption fee, determined after receipt of the order
as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at
a price below that next quoted by the Fund for redemption or repurchase, I.E.,
at the net asset value of such Shares, less any applicable deferred sales
charge, or redemption fee, in accordance with the Fund's Prospectus. Dealer
shall, however, be permitted to sell Shares for the account of the customer or
record owner to the Funds at the repurchase price then currently in effect for
such Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has
made, if instructions in proper form, including any outstanding certificates,
are not received by Distributor within the time customary or the time required
by law, the redemption may be canceled forthwith without any responsibility or
liability on Distributor's part or on the part of any Fund, or Distributor, at
its option, may buy the shares redeemed on behalf of the Fund, in which latter
case Distributor may hold Dealer responsible for any loss, including loss of
profit, suffered by Distributor resulting from Distributor's failure to settle
the redemption.
d. Dealer agrees that it will comply with any restrictions and
limitations on exchanges described in each Fund's Prospectus, including any
restrictions or prohibitions relating to frequent purchases and redemptions
(i.e., market timing).
6. MULTIPLE CLASSES OF SHARES
Distributor may, from time to time, provide Dealer with written
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of Shares with different sales charges and distribution-related
operating expenses.
7. FUND INFORMATION
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations concerning Shares of any Fund except those contained in the
Fund's then current Prospectus or in materials provided by Distributor.
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<PAGE>
b. Distributor will supply to Dealer Prospectuses, reasonable
quantities of sales literature, sales bulletins, and additional sales
information as provided by Distributor. Dealer agrees to use only advertising
or sales material relating to the Funds that: (i) is supplied by Distributor, or
(ii) conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Funds and is approved in writing by Distributor in advance of its
use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. SHARES
a. Distributor acts solely as agent for the Fund and Distributor
shall have no obligation or responsibility with respect to Dealer's right to
purchase or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws
regulating the sale of securities in the United States or any foreign
jurisdiction, with respect to the qualification or status of Dealer or Dealer's
personnel selling Fund Shares. Distributor shall not, in any event, be liable
or responsible for the issue, form, validity, enforceability and value of such
Shares or for any matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in
any foreign jurisdiction, except with the express written consent of
Distributor.
9. INDEMNIFICATION
a. Dealer agrees to indemnify, defend and hold harmless Distributor
and the Funds and their predecessors, successors, and affiliates, each current
or former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to: (i) any alleged violation
of any statute or regulation (including without limitation the securities laws
and regulations of the United States or any state or foreign country) or any
alleged tort or breach of contract, related to the offer or sale by Dealer of
Shares of the Funds pursuant to this Agreement (except to the extent that
Distributor's negligence or failure to follow correct instructions received from
Dealer is the cause of such loss,
A-7
<PAGE>
claim, liability, cost or expense); (ii) any redemption or exchange pursuant to
instructions received from Dealer or its partners, affiliates, officers,
directors, employees or agents; or (iii) the breach by Dealer of any of its
representations and warranties specified herein or the Dealer's failure to
comply with the terms and conditions of this Agreement, whether or not such
action, failure, error, omission, misconduct or breach is committed by Dealer or
its predecessor, successor, or affiliate, each current or former partner,
officer, director, employee or agent and each person who controls or is
controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer
and its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable time, of
any claim or complaint or any enforcement action or other proceeding with
respect to Shares offered hereunder against Dealer or its partners, affiliates,
officers, directors, employees or agents, or any person who controls Dealer,
within the meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of
(i) any report filed pursuant to NASD Conduct Rule 3070, including, without
limitation quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed
with any other self-regulatory organization in lieu of Rule 3070 reports
pursuant to Rule 3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions
shall survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
a. In addition to the automatic termination of this Agreement
specified in Section 1.c. of this Agreement, each party to this Agreement may
unilaterally cancel its participation in this Agreement by giving thirty (30)
days prior written notice to the other party. In addition, each party to this
Agreement may terminate this Agreement immediately by giving written notice to
the other party of that other party's material breach of this Agreement. Such
notice shall be deemed to have been given and to be effective on the date on
which it was either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
b. This Agreement shall terminate immediately upon the appointment
of a Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective date
of termination and shall
A-8
<PAGE>
not relieve Dealer of its obligations, duties and indemnities specified in this
Agreement. A trade placed by Dealer subsequent to its voluntary termination of
this Agreement will not serve to reinstate the Agreement. Reinstatement, except
in the case of a temporary suspension of Dealer, will only be effective upon
written notification by Distributor.
d. This Agreement is not assignable or transferable and will
terminate automatically in the event of its "assignment," as defined in the
Investment Company Act of 1940, as amended and the rules, regulations and
interpretations thereunder. The Distributor may, however, transfer any of its
duties under this Agreement to any entity that controls or is under common
control with Distributor.
e. This Agreement may be amended by Distributor at any time by
written notice to Dealer. Dealer's placing of an order or accepting payment of
any kind after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
Distributor represents and warrants that:
a. It is a limited liability company duly organized and existing and
in good standing under the laws of the state of Delaware and is duly registered
or exempt from registration as a broker-dealer in all states and jurisdictions
in which it provides services as principal underwriter and distributor for the
Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's
charter and by-laws to enter into this Agreement and perform all activities and
services of the Distributor provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Distributor's ability to perform under this
Agreement.
d. All requisite actions have been taken to authorize Distributor to
enter into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found elsewhere in
this Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the
laws of the state, commonwealth or other jurisdiction in which Dealer is
organized and that Dealer will not offer Shares of any Fund for sale in any
state or jurisdiction where such Shares may not be legally sold or where Dealer
is not qualified to act as a broker-dealer.
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<PAGE>
b. It is empowered under applicable laws and by Dealer's
organizational documents to enter into this Agreement and perform all activities
and services of the Dealer provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Dealer's ability to perform under this
Agreement.
c. All requisite actions have been taken to authorize Dealer to
enter into and perform this Agreement.
d. It is not, at the time of the execution of this Agreement,
subject to any enforcement or other proceeding with respect to its activities
under state or federal securities laws, rules or regulations.
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
a. Should any of Dealer's concession accounts with Distributor have
a debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal court
having jurisdiction.
c. This Agreement shall be governed and construed in accordance with
the laws of the state of New Jersey, not including any provision which would
require the general application of the law of another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial proceeding with
respect to each's activities under this Agreement and promptly to notify the
other party of any such investigation or proceeding.
15. CAPTIONS
All captions used in this Agreement are for convenience only, are not
a party hereof, and are not to be used in construing or interpreting any aspect
hereof.
16. ENTIRE UNDERSTANDING
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement shall be binding upon the parties hereto when signed
by Dealer and accepted by Distributor.
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<PAGE>
17. SEVERABILITY
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement is held under applicable law to be
invalid, illegal, or unenforceable in any respect, such provision shall be
ineffective only to the extent of such invalidity, and the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be
binding upon the parties hereto when signed by Dealer and accepted by
Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Date:
-----------------------------------
DEALER:
---------------------------------
By:
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
NASD CRD #
------------------------------
Prudential Dealer #
---------------------
(Internal Use Only)
Date:
-----------------------------------
A-11
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL 20/20 FOCUS FUND
and
PRUDENTIAL MUTUAL FUND SERVICES LLC
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of PMFS...........................2
Article 2 Fees and Expenses..............................................5
Article 3 Representations and Warranties of PMFS.........................6
Article 4 Representations and Warranties of the Trust....................7
Article 5 Duty of Care and Indemnification...............................8
Article 6 Documents and Covenants of the Trust and PMFS.................10
Article 7 Termination of Agreement......................................12
Article 8 Assignment....................................................13
Article 9 Affiliations..................................................13
Article 10 Amendment.....................................................14
Article 11 Applicable Law................................................14
Article 12 Miscellaneous.................................................15
Article 13 Merger of Agreement...........................................16
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 27th day of April, 1998 by and between PRUDENTIAL
20/20 FOCUS FUND, a Delaware business trust having its principal office and
place of business at Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102 (the Trust), and PRUDENTIAL MUTUAL FUND SERVICES LLC, a New Jersey
limited liability corporation, having its principal office and place of business
at Raritan Plaza One, Edison, New Jersey 08837 (the Agent or PMFS).
WHEREAS, the Trust 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 Trust 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 beneficial
interest of the Trust, $.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 Trust or any series thereof
(Shareholders) and set out in the currently effective prospectuses and statement
of additional information (prospectus) of the Trust, including without
limitation any periodic
2
<PAGE>
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 Trust 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 Trust authorized pursuant to the Declaration of Trust of the
Trust (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 Trust;
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions of Shares of the Trust as such charges may be reflected in
the prospectus;
3
<PAGE>
(viii) Maintain records of account for and advise the Trust and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Trust 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 Trust which are authorized, based
upon data provided to it by the Trust, and issued and outstanding. PMFS
shall also provide to the Trust on a regular basis the total number of Shares
which are authorized, issued and outstanding and shall notify the Trust in
case any proposed issue of Shares by the Trust 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 Trust.
(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
4
<PAGE>
distributions by federal tax authorities for all Shareholders, preparing and
mailing confirmation forms and statements 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 Trust to monitor the total number of Shares sold
in each State or other jurisdictions.
(c) In addition, the Trust 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 Trust'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 Trust and the reporting of such transactions to the Trust as provided above
and as agreed from time to time by the Trust and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Trust 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 Trust and PMFS.
Article 2 FEES AND EXPENSES
2.01 For performance by PMFS pursuant to this Agreement, the Trust
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
5
<PAGE>
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such 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 Trust and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Trust
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 Trust will
be reimbursed by the Trust.
2.03 The Trust 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, Trust reports and
other mailings to all Shareholder accounts shall be advanced to PMFS by the
Trust upon request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Trust 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.
6
<PAGE>
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
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 TRUST
The Trust represents and warrants to PMFS that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Delaware.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All proceedings required by said Declaration of Trust 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 notice filings have been made and will continue to be made,
with respect to all Shares of the Trust being offered for sale.
7
<PAGE>
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Trust 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:
(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 Trust's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trust's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Trust 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 Trust, and (ii)
have been prepared and/or maintained by the Trust or any other person or firm on
behalf of the Trust.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Trust.
(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 notice of such Shares be filed 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
8
<PAGE>
State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Trust 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.
5.03 At any time PMFS may apply to any officer of the Trust 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 Trust 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 Trust, 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 Trust, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Trust. 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
Trust, and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
9
<PAGE>
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 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 TRUST AND PMFS
6.01 The Trust shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Trust authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
10
<PAGE>
(b) A certified copy of the Declaration of Trust and By-Laws of the Trust
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 certificates for Shares of the Trust in the forms
approved by the Board of Trustees, with a certificate of the Secretary of the
Trust as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Trust; 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 Trust 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 Trust and will be
11
<PAGE>
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 Trust on and in accordance with its request.
6.04 PMFS and the Trust 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
Trust.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Trust, PMFS will endeavor to notify the Trust and to
secure instructions from an authorized officer of the Trust 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 Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Trust. Additionally, PMFS reserves the right to charge for any
other reasonable fees and expenses associated with such termination.
12
<PAGE>
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 Trust, 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 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 Trust 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 Trust, 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
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<PAGE>
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 trustees, officers,
employees, agents and Shareholders of the Trust, and the directors, officers,
employees, agents and shareholders of the Trust'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 Trust as
trustees, officers, employees, agents, Shareholders or otherwise, or in the
investment adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
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 Trustees of the Trust.
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.
14
<PAGE>
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 Trust 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 Trust 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 Trust'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 Trust and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Trust 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.
15
<PAGE>
To the Trust:
Prudential 20/20 Focus Fund
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: President
To PMFS:
Prudential Mutual Fund Services LLC
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.
16
<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.
ATTEST: PRUDENTIAL 20/20 FOCUS FUND
/s/ Marguerite E.H. Morrison By:/s/ Richard A. Redeker
- ---------------------------- -------------------------
Marguerite E.H. Morrison Richard A. Redeker
Assistant Secretary President
ATTEST: PRUDENTIAL MUTUAL
FUND SERVICES LLC
By: /s/ Vincent M. Marra
- ---------------------------- ------------------------
Vincent M. Marra
17
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services LLC
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
----------------------------------
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 May 22, 1998 through December 31, 1998 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.
<TABLE>
<S> <C>
Annual Maintenance Per Account Fee $9.50
OTHER CHARGES
New Account Set-up Fee for Manually $2.00
Established Accounts
Monthly Inactive Zero Balance Account Fee $ .20
</TABLE>
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 Trust.
PAYMENT - An invoice will be presented to the Trust on a monthly basis assessing
the Trust the appropriate fee and out-of-pocket expenses.
18
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND PRUDENTIAL MUTUAL FUND
SERVICES LLC
BY: /s/ Richard A. Redeker BY: /s/ Vincent M. Marra
------------------------ -------------------------
NAME: Richard A. Redeker NAME: Vincent M. Marra
------------------------ -------------------------
TITLE: President TITLE:
------------------------ -------------------------
DATE: DATE:
------------------------ -------------------------
19
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
Amended and Restated
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 20/20 Focus Fund (the Fund) and by Prudential Investment
Management Services LLC, 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 Trustees of the Fund, including a majority of
those Trustees 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
Trustees), 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 and continuation 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
A shares
1
<PAGE>
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
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and 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 of the average daily net assets of the Class A shares (service
fee). The Fund shall
2
<PAGE>
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 Trustees 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 Trustees 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 Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions and trailer commissions paid to, or on
account of, account executives of the Distributor;
3
<PAGE>
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch
expenses;
(c) amounts paid to Prudential Securities or Prusec for
performing services under a selected dealer agreement
between Prudential Securities or 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 Prudential Securities or
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 Trustees 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 Trustees 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 Trustees 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 Trustees of the Fund and a majority of the Rule 12b-1
Trustees 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, without the payment of any
penalty, by a majority of the Rule 12b-1 Trustees, 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, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
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
5
<PAGE>
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 Trustees of the Fund and a
majority of the Rule 12b-1 Trustees by votes cast in person at a meeting called
for the purpose of voting on the Plan.
8. RULE 12b-1 TRUSTEES
While the Plan is in effect, the selection and nomination of the Trustees
shall be committed to the discretion of the Rule 12b-1 Trustees.
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: April 27, 1998, as amended
and restated on June 1, 1998
6
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
Amended and Restated
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 20/20 Focus Fund (the Fund) and by Prudential Investment
Management Services LLC, 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 Trustees 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 Trustees), 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 and
continuation 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
1
<PAGE>
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 B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and 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
2
<PAGE>
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 Trustees 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 Trustees 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 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
Trustees. The allocation of distribution expenses among classes will be subject
to the review of the Board of Trustees. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred, unless otherwise
determined by the Board of Trustees.
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 Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or 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 Prudential Securities or 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 Trustees 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 Trustees 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.
4
<PAGE>
The Distributor will inform the Board of Trustees 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.
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 Trustees of the Fund and a majority of the Rule 12b-1
Trustees 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, without the payment of any
penalty, by a majority of the Rule 12b-1 Trustees, 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, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
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
5
<PAGE>
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
Trustees of the Fund and a majority of the Rule 12b-1 Trustees by votes cast in
person at a meeting called for the purpose of voting on the Plan.
8. RULE 12b-1 TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
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: April 27, 1998, as amended and
restated on June 1, 1998
6
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
Amended and Restated
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 20/20 Focus Fund (the Fund) and by Prudential Investment
Management Services LLC, 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 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 Trustees 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 Trustees), 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 and
continuation 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
1
<PAGE>
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 C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's 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 Prudential
Securities Incorporated (Prudential Securities) and 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 Trustees 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 Trustees 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
Trustees. The allocation of distribution expenses among classes will be subject
to the review of the Board of Trustees. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred, unless otherwise
determined by the Board of Trustees.
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
3
<PAGE>
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 Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or 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 Prudential Securities or 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 Trustees 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 Trustees 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 Trustees 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 Trustees of the Fund and a majority of the Rule 12b-1
Trustees 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, without the payment of any
penalty, by a majority of the Rule 12b-1 Trustees, 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, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
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
5
<PAGE>
approved by the vote of a majority of the outstanding voting securities (as
defined in the 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
Trustees of the Fund and a majority of the Rule 12b-1 Trustees by votes cast in
person at a meeting called for the purpose of voting on the Plan.
8. RULE 12b-1 TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
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: April 27, 1998, as amended and
restated on June 1, 1998
6
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
(the Fund)
AMENDED AND RESTATED
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 Trustees,
including a majority of the independent 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 from 5% to zero over a six-year
period) 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. 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 issued before November 2, 1998 are not
subject to an initial sales charge but are subject to a
1% contingent deferred sales charge which will be
imposed on certain redemptions within the first 12
months after purchase and a Rule 12b-1 fee not to
exceed 1% per annum of the average daily net assets
of the class. Class C shares issued on or after
November 2, 1998 are subject to a low initial sales
charge and a 1% contingent deferred sales charge which
will be imposed on certain redemptions within the first
18 months after purchase 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
Holders of Class A Shares, Class B Shares, Class C Shares and Class Z
Shares shall have such exchange privileges as set forth in the Fund's
current prospectus. Exchange privileges may vary among classes and among
holders of a Class.
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.
B. On an ongoing basis, the 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
<PAGE>
classes. The Trustees, including a majority of the independent
Trustees, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Investments Fund
Management LLC, the Fund's Manager, will be responsible for reporting any
potential or existing conflicts to the 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: April 27, 1998
Amended: June 1, 1998
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<GROSS-EXPENSE> 808,637
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<PER-SHARE-NII> 0.01
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