<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000
REGISTRATION NO. 333-43491
811-08587
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 3 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4 /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)
/X/ on March 31, 2000 pursuant to paragraph (b)
/ / 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>
PROSPECTUS MARCH 31, 2000
PRUDENTIAL
20/20 FOCUS FUND
FUND TYPE Stock
OBJECTIVE Long-term growth of capital
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.
[PRUDENTIAL LOGO]
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
2 Principal Risks
3 Evaluating Performance
4 Fees and Expenses
6 HOW THE FUND INVESTS
6 Investment Objective and Policies
8 Other Investments and Strategies
11 Investment Risks
14 HOW THE FUND IS MANAGED
14 Board of Trustees
14 Manager
14 Investment Advisers
15 Portfolio Managers
15 Distributor
16 FUND DISTRIBUTIONS AND TAX ISSUES
16 Distributions
17 Tax Issues
18 If You Sell or Exchange Your Shares
20 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
20 How to Buy Shares
28 How to Sell Your Shares
32 How to Exchange Your Shares
33 Telephone Redemptions or Exchanges
34 FINANCIAL HIGHLIGHTS
34 Class A Shares
35 Class B Shares
36 Class C Shares
37 Class Z Shares
38 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
- -------------------------------------
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 we believe have 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 in which the Fund primarily invests are common
stocks, nonconvertible preferred stocks and convertible securities. We also may
use derivatives for hedging or to improve the Fund's returns.
For the growth portion of the portfolio, we consider selling or reducing a
stock position when, in the opinion of the investment adviser, the stock has
experienced a fundamental disappointment in earnings; it has reached an
intermediate-term price objective and its outlook no longer seems sufficiently
promising; a relatively more attractive stock emerges; or the stock has
experienced adverse price movement. For the value portion of the portfolio, we
consider selling a security when it has increased in price to the point where it
is no longer undervalued in the opinion of the investment adviser. While we make
every effort to achieve our objective, we can't guarantee success.
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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. This means 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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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 indexes. As a result, the
Fund's performance can deviate from the performance of such indexes.
The Fund is NONDIVERSIFIED, meaning we can invest more than 5% of our assets
in the securities of any one issuer. Investing in a nondiversified 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 nondiversified fund.
Some of our investment strategies--such as using derivatives--involve
above-average risks. The Fund may use risk management techniques to try to
preserve assets or enhance return. Derivatives may not fully offset the
underlying positions and this could result in losses to the Fund that would not
otherwise have occurred.
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 "How the Fund Invests--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
- ------------------------------------------------
EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for its only full calendar year
of operation. The bar chart and table below demonstrate the risk of investing in
the Fund by showing how returns can change from year to year and by showing how
the Fund's average annual total returns compare with a stock index and a group
of similar mutual funds. Past performance does not mean that the Fund will
achieve similar results in the future.
ANNUAL RETURN* (CLASS A SHARES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1999 20.07%
BEST QUARTER: 20.01% (1st quarter of
1999)
WORST QUARTER: .90% (3rd quarter of 1999)
</TABLE>
* THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. WITHOUT THE
DISTRIBUTION AND SERVICE (12b-1) FEE WAIVER, THE ANNUAL RETURNS WOULD HAVE
BEEN LOWER, TOO.
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-99)
<TABLE>
<CAPTION>
1 YR SINCE INCEPTION
<S> <C> <C>
Class A shares 32.00% 27.81% (since 7-1-98)
Class B shares 31.07% 26.77% (since 7-1-98)
Class C shares 31.07% 26.77% (since 7-1-98)
Class Z shares 32.30% 28.02% (since 7-1-98)
S&P 500(2) 21.03% 20.42% (since 7-1-98)
Lipper Average(3) 22.35% 22.68% (since 7-1-98)
</TABLE>
1 THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
WITHOUT THE DISTRIBUTION AND SERVICE (12b-1) FEE WAIVER FOR CLASS A SHARES,
THE RETURNS WOULD HAVE BEEN LOWER.
2 THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX (S&P 500)--AN
UNMANAGED INDEX OF 500 STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK
AT HOW STOCK PRICES HAVE PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT
OF ANY SALES CHARGES OR OPERATING EXPENSES OF A MUTUAL FUND. THESE RETURNS
WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES AND OPERATING
EXPENSES. SOURCE: LIPPER INC.
3 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
THE LIPPER LARGE-CAP CORE FUNDS CATEGORY AND DOES NOT INCLUDE THE EFFECT OF
ANY SALES CHARGES. AGAIN, THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE
EFFECT OF SALES CHARGES. SOURCE: LIPPER INC.
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3
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of 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>
CLASS A CLASS B CLASS C CLASS Z
<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>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .75% .75% .75% .75%
+ Distribution and service
(12b-1) fees .30%(4) 1.00% 1.00% None
+ Other expenses .20% .20% .20% .20%
= Total annual Fund
operating expenses 1.25% 1.95% 1.95% .95%
- Fee waiver .05% None None None
= NET ANNUAL FUND OPERATING
EXPENSES 1.20%(4) 1.95% 1.95% .95%
</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 1-31-01, THE DISTRIBUTOR OF THE FUND HAS
CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES
FOR CLASS A SHARES TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE
CLASS A SHARES.
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4 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<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 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, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A shares during the
first year. Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $616 $872 $1,147 $1,932
Class B shares $698 $912 $1,152 $2,009
Class C shares $396 $706 $1,142 $2,352
Class Z shares $ 97 $303 $ 525 $1,166
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $616 $872 $1,147 $1,932
Class B shares $198 $612 $1,052 $2,009
Class C shares $296 $706 $1,142 $2,352
Class Z shares $ 97 $303 $ 525 $1,166
</TABLE>
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5
<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 we
believe have 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 portfolio manager may temporarily
hold more than 20 securities.
In addition to common stocks, nonconvertible preferred stocks and
convertible securities, equity-related securities include American Depositary
Receipts (ADRs); warrants and rights that can be exercised to obtain stock;
investments in various types of business ventures, including partnerships and
joint ventures; real estate investment trusts (REITs); and similar securities.
Convertible securities are securities--like bonds, corporate notes and preferred
stocks--that we can convert into the company's common stock or some other equity
security. We may buy common stocks of companies of every size--small-, medium-
and large-capitalization--although our investments are mostly in medium-and
large-capitalization stocks. The Fund intends to be fully invested, holding less
than 5% of its total assets in cash under normal market conditions. For the
growth portion of the portfolio, we
- -------------------------------------------------------------------
OUR GROWTH STYLE
Our growth portfolio manager, Spiros Segalas, invests in mid-size 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. These 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-size
companies selling at a price that is low relative to a company's earnings,
assets, cash flow and dividends.
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6 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
consider selling or reducing a stock position when, in the opinion of the
investment adviser, the stock has experienced a fundamental disappointment in
earnings; it has reached an intermediate-term price objective and its outlook no
longer seems sufficiently promising; a relatively more attractive stock emerges;
or the stock has experienced adverse price movement. For the value portion of
the portfolio, we consider selling a security when it has increased in price to
the point where it is no longer undervalued in the opinion of the investment
adviser.
DIVISION OF ASSETS
STRATEGY. Under normal conditions, there will be an approximately equal division
of the Fund's assets between the two investment advisers. All daily cash inflows
(that is, purchases and reinvested distributions) and outflows (that is,
redemptions and expense items) will be divided between the two investment
advisers as the Manager deems appropriate. There will be a periodic rebalancing
of each segment's assets to take account of market fluctuations in order to
maintain the approximately equal allocation. As a consequence, the Manager may
allocate assets from the portfolio segment that has appreciated more to the
other.
RISKS. Reallocations may result in additional costs since sales of securities
may result in higher portfolio turnover. Also, 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. The
Manager will monitor the overall portfolio to ensure that any such overlaps do
not create an unintended industry concentration. In addition, if one investment
adviser buys a security as the other investment 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 portfolio and no such sale and purchase, but the Fund
will have incurred additional costs. The Manager will consider these costs in
determining the allocation of assets. The Manager will consider the timing of
reallocation based upon the best interests of the Fund and its shareholders. To
maintain the Fund's federal income tax status as a regulated investment company,
the Manager also may have to sell securities on a periodic basis and the Fund
could realize capital gains that would not have otherwise occurred.
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7
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
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 can change investment policies
that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we also may use the following
investment strategies to try to increase the Fund's returns or protect its
assets if market conditions warrant.
FOREIGN SECURITIES
We may invest up to 20% of the Fund's total assets in FOREIGN SECURITIES,
including stocks and other equity-related securities, fixed-income securities
and money market instruments. For purposes of the 20% limit, we do not consider
ADRs and other similar receipts or shares to be foreign securities.
MONEY MARKET INSTRUMENTS
The Fund may 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. 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).
REPURCHASE AGREEMENTS
The Fund may 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 and is, in effect, a loan by the Fund.
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8 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
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.
Investing heavily in these securities limits our ability to achieve our
investment objective, but can help to preserve the Fund's assets when the equity
markets are unstable.
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.
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.
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.
- --------------------------------------------------------------------------------
9
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
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.
OPTIONS. The Fund may purchase and sell put and call options on securities
indexes traded on U.S. or foreign securities exchanges or in the over-the-
counter market. An OPTION is the right to buy or sell securities in exchange for
a premium. The Fund will sell only covered options.
FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase and sell stock
index futures contracts and related options on stock index futures. The Fund
also may purchase and sell futures contracts on foreign currencies and options
on foreign currency futures contracts. The Fund also may purchase futures
contracts on debt securities and aggregates of debt securities. 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.
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
including collateral received in the transaction); and HOLDS ILLIQUID SECURITIES
(the Fund may hold up to 15% of its net assets in illiquid 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 "NONDIVERSIFIED," 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.
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10 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
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
indexes, performance of the Fund can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. See,
too, "Description of the Fund, Its Investments and Risks" in the SAI.
INVESTMENT TYPE
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
EQUITY-RELATED -- Individual stocks -- Historically, stocks
SECURITIES could lose value have outperformed
AT LEAST 80% -- 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 corporate profits,
investments which lead to an
-- Changes in economic or increase in stock
political conditions, prices, known as
both domestic and capital appreciation
international, may
result in a decline
in value of the
Fund's investments
- --------------------------------------------------------------------------------------------------
FOREIGN SECURITIES -- Foreign markets, -- Investors can
UP TO 20% economies and participate in
political systems may foreign markets and
not be as stable as companies operating
in the U.S. in those markets
-- Currency risk-- -- Changing values of
changing values of foreign currencies
foreign currencies -- Opportunities for
can cause losses diversification
-- May be less liquid
than U.S. stocks and
bonds
-- Differences in foreign
laws, accounting
standards, public
information, custody
and settlement
practices provide
less reliable
information on
foreign investments
and involve more risk
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
DERIVATIVES -- Derivatives such as -- The Fund could make
PERCENTAGE VARIES futures and options money and protect
that are used for against losses if the
hedging purposes may investment analysis
not fully offset the proves correct
underlying positions -- Derivatives that
and this could result involve leverage
in losses to the Fund could generate
that would not have substantial gains at
otherwise occurred low cost
-- Derivatives used for -- One way to manage the
risk management may Fund's risk/return
not have the intended balance is by locking
effects and may in the value of an
result in losses or investment ahead of
missed opportunities time
-- The other party to a
derivatives contract
could default
-- Derivatives that
involve leverage
could magnify losses
-- Certain types of
derivatives involve
costs to the Fund
that can reduce
returns
- --------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (REITs) -- Performance depends on -- Real estate holdings
UP TO 25% the strength of real can generate good
estate markets, REIT returns from rents,
management and rising market values,
property management etc.
which can be affected -- Greater
by many factors, diversification than
including national direct ownership
and regional economic
conditions
- --------------------------------------------------------------------------------------------------
SHORT SALES -- May magnify underlying -- May magnify underlying
UP TO 25% OF NET ASSETS investment losses investment gains
-- Investment costs may
exceed potential
underlying investment
gains
- --------------------------------------------------------------------------------------------------
</TABLE>
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12 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES -- Not all U.S. -- May preserve the
UP TO 20% government securities Fund's assets
are insured by the -- Regular interest
U.S. government, but income
only by the issuing -- Generally more secure
agency than lower quality
-- Limits potential for debt securities and
capital appreciation equity securities
-- Credit risk--the risk -- Principal and interest
that the default of may be guaranteed by
an issuer would leave the U.S. government
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
-- Interest rate
risk--the risk that
the value of most
debt obligations 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 -- May offer a more
UP TO 15% OF NET ASSETS value precisely attractive yield or
-- May be difficult to potential for growth
sell at the time or than more widely
price desired traded securities
- --------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS -- Limits potential for -- May preserve the
UP TO 20% ON A NORMAL BASIS AND UP TO capital appreciation Fund's assets
100% ON A TEMPORARY BASIS -- See market risk and
credit risk
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
HOW THE FUND IS MANAGED
- -------------------------------------
BOARD OF TRUSTEES
The Fund's Board of Trustees oversees the actions of the Manager, Investment
Advisers and Distributor, and decides on general policies. The Board also
oversees the Fund's officers, who conduct and supervise the daily business
operations of the Fund.
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 also is
responsible for supervising the Fund's investment advisers. For the fiscal year
ended January 31, 2000, the Fund paid PIFM management fees of .75 of 1% of the
Fund's average net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of January 31, 2000, PIFM served as the
manager to all 43 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $74.9 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, NY 10017.
Prudential Investments has served as an investment adviser to investment
companies since 1984. Jennison has served as an investment adviser to investment
companies since 1990.
PIFM has responsibility for all investment advisory services and supervises
Prudential Investments and Jennison. PIFM pays Prudential Investments and
Jennison for their services. As of January 31, 2000, Jennison managed
approximately $58.7 billion in assets.
- -------------------------------------------------------------------
14 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
PORTFOLIO MANAGERS
THOMAS R. JACKSON, a Managing Director of Prudential Investments, has been the
portfolio manager for the value portion of the assets since the Fund began
investment operations in July 1998. Mr. Jackson joined Prudential Investments in
1990 as a portfolio manager and has over 30 years of professional equity
investment management experience. He received a B.A. from Dartmouth College and
is a member of the New York Society of Security Analysts.
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 growth portion of the
assets, and has served as such since the Fund began investment operations. Mr.
Segalas has been in the investment business for over 35 years and has managed
equity portfolios for investment companies since 1990. He is a founding member,
Director, President and Chief Investment Officer of Jennison. Mr. Segalas
received a B.A. from Princeton University and is a member of the New York
Society of Security Analysts.
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" tables.
- --------------------------------------------------------------------------------
15
<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. Dividends
and distributions from the Fund also may be subject to state and local income
tax in the state where you live.
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 twice a year. 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. Capital gains 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
- -------------------------------------------------------------------
16 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
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.
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 calendar 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 taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your distributions and sale proceeds.
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
- --------------------------------------------------------------------------------
17
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
when dividends are paid out, the value of each share of the Fund decreases by
the amount of the dividend to reflect the payout, although this may not be
apparent because the value of each share of the Fund also will be affected by
the market changes, if any. 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.
QUALIFIED OR TAX-DEFERRED 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)
If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other
- -------------------------------------------------------------------
18 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
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 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 adviser 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.
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 Internal
Revenue Service. 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.
- --------------------------------------------------------------------------------
19
<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 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
- -------------------------------------------------------------------
20 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<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%
Years 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. FOR THE FISCAL YEAR
ENDING 1-31-01, THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO
REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES FOR CLASS A SHARES TO .25
OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES.
- --------------------------------------------------------------------------------
21
<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 how
the sales charge decreases as the amount of your investment increases.
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF 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)
-- 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.
The Distributor may reallow Class A's sales charge to dealers.
BENEFIT PLANS. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required
- -------------------------------------------------------------------
22 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.
MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, 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
-- Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Other investors pay no sales charge, including certain
officers, employees or agents of Prudential and its affiliates, the Prudential
mutual funds, the subadvisers of the Prudential mutual funds and registered
representatives and employees of brokers that have entered into a 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. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
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 (Prudential Securities) or one of its affiliates. These
purchases must be made within 60 days of the redemption. To qualify for this
waiver, you must do one of the following:
-- Purchase your shares through an account at Prudential Securities
-- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation
-- 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
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,
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, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,
consulting or other fee for its services
-- Mutual fund "supermarket" programs, where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
- -------------------------------------------------------------------
24 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:
-- 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
-- Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund)
-- 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 A or 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 converted Class B shares 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."
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
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 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 liabilities) 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 (NYSE) is open for trading.
The NYSE is closed on most national holidays and Good Friday. Because the Fund
may invest in foreign securities, its NAV may change on days when you cannot buy
or sell shares. We do not determine the 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
the 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.
- -------------------------------------------------------------------
- -------------------------------------------------------------------
26 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<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 through
Prudential. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
evidence of insurability. This insurance is subject to other restrictions and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption 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, your broker 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.
- -------------------------------------------------------------------
28 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<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 $100,000 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 you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order signature guaranteed by an "eligible
guarantor institution." An "eligible guarantor institution" includes any bank,
broker-dealer or credit union. 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.
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
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 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
calculated based on 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, 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
BENEFIT PLANS. The CDSC will be waived for purchases by certain group retirement
plans for which Prudential or brokers not affiliated with Prudential provide
administrative or recordkeeping services. The CDSC also will be waived for
certain redemptions by benefit plans sponsored by Prudential and its affiliates.
For more information, call Prudential at (800) 353-2847.
- -------------------------------------------------------------------
30 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
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
qualified 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 number 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
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.
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
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
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 a legal opinion that
- -------------------------------------------------------------------
32 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
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 decision
may be based upon dollar amount, volume and frequency of trading. 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.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852 before 4:15 p.m. New York time. You will receive a redemption
amount based on that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.
The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
- --------------------------------------------------------------------------------
33
<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 SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.
CLASS A SHARES (FISCAL PERIODS ENDED 1-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999(1),(5)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $11.49 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.01) .01
Net realized and unrealized gain
on investments and foreign
currencies 2.30 1.51
TOTAL FROM INVESTMENT OPERATIONS 2.29 1.52
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized
gains (.60) --
Tax return of capital distribution -- (.03)
TOTAL DISTRIBUTIONS (.60) (.03)
NET ASSET VALUE, END OF PERIOD $13.18 $11.49
TOTAL RETURN(2) 20.07% 15.19%
- ----------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
- ----------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $270,027 $159,777
Average net assets (000) $205,515 $131,335
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees(4) 1.20% 1.32%(3)
Expenses, excluding distribution
fees .95% 1.07%(3)
Net investment income (loss) (.10)% .13%(3)
Portfolio turnover 105% 70%
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD 7-1-98 (WHEN CLASS A 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 RETURN FOR PERIODS OF LESS THAN A FULL YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
4 THE DISTRIBUTOR OF THE FUND AGREED TO LIMIT ITS DISTRIBUTION FEES TO .25 OF
1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES.
5 CALCULATED BASED ON AVERAGE MONTH-END SHARES OUTSTANDING DURING THE PERIOD.
- --------------------------------------------------------------------------------
34 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS B SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.
CLASS B SHARES (FISCAL PERIODS ENDED 1-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999(1),(5)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.46 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.10) (.04)
Net realized and unrealized gain on
investments and foreign currencies 2.28 1.50
TOTAL FROM INVESTMENT OPERATIONS 2.18 1.46
- --------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized gains (.60) --
Tax return of capital distribution -- --(4)
TOTAL DISTRIBUTIONS (.60) --
NET ASSET VALUE, END OF PERIOD $13.04 $11.46
TOTAL RETURN(2) 19.16% 14.61%
- --------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
- --------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $729,339 $443,798
Average net assets (000) $581,150 $334,157
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.95% 2.07%(3)
Expenses, excluding distribution fees .95% 1.07%(3)
Net investment income (loss) (.85)% (.62)%(3)
Portfolio turnover 105% 70%
</TABLE>
1 INFORMATION IS SHOWN FOR THE PERIOD 7-1-98 (WHEN 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
PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN ONE YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
4 LESS THAN $.005 PER SHARE.
5 CALCULATED BASED ON AVERAGE MONTH-END SHARES OUTSTANDING DURING THE PERIOD.
- --------------------------------------------------------------------------------
35
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS C SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.
CLASS C SHARES (FISCAL PERIODS ENDED 1-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999(1),(4)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $11.46 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.10) (.03)
Net realized and unrealized gain
on investments and foreign
currencies 2.28 1.49
TOTAL FROM INVESTMENT OPERATIONS 2.18 1.46
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized
gains (.60) --
Tax return of capital distribution -- --(5)
TOTAL DISTRIBUTIONS (.60) --
NET ASSET VALUE, END OF PERIOD $13.04 $11.46
TOTAL RETURN(2) 19.16% 14.61%
- -------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
- -------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $145,733 $81,100
Average net assets (000) $111,039 $64,848
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.95% 2.07%(3)
Expenses, excluding distribution
fees .95% 1.07%(3)
Net investment loss (.84)% (.62)%
Portfolio turnover 105% 70%
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD 7-1-98 (WHEN CLASS C 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 RETURN FOR PERIODS OF LESS THAN ONE YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
4 CALCULATED BASED ON AVERAGE MONTH-END SHARES OUTSTANDING DURING THE PERIOD.
5 LESS THAN $.005 PER SHARE.
- --------------------------------------------------------------------------------
36 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS Z SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.
CLASS Z SHARES (FISCAL PERIODS ENDED 1-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999(1),(4)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.49 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .02 .02
Net realized and unrealized gain on
investments and foreign currencies 2.29 1.51
TOTAL FROM INVESTMENT OPERATIONS 2.31 1.53
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net realized gains (.60) --
Tax return of capital distribution -- (.04)
TOTAL DISTRIBUTIONS (.60) (.04)
NET ASSET VALUE, END OF PERIOD $13.20 $11.49
TOTAL RETURN(2) 20.25% 15.32%
- ------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
- ------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $68,352 $22,882
Average net assets (000) $45,183 $12,905
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees .95% 1.07%(3)
Expenses, excluding distribution fees .95% 1.07%(3)
Net investment income .16% .38%(3)
Portfolio turnover 105% 70%
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD 7-1-98 (WHEN 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 RETURN FOR PERIODS OF LESS THAN ONE YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
4 CALCULATED BASED ON AVERAGE MONTH-END SHARES OUTSTANDING DURING THE PERIOD.
- --------------------------------------------------------------------------------
37
<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 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 SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED FUNDS
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE 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.
PRUDENTIAL GLOBAL GROWTH FUND
PRUDENTIAL INTERNATIONAL VALUE FUND
PRUDENTIAL JENNISON INTERNATIONAL GROWTH FUND
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- -------------------------------------------------------------------
38 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
<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
TARGET FUNDS
TOTAL RETURN BOND FUND
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
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40 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
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Notes
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41
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Notes
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42 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
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Notes
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43
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Notes
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44 PRUDENTIAL 20/20 FOCUS FUND [LOGO] (800) 225-1852
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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) 482-7555 (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 website 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 20549-0102
BY ELECTRONIC REQUEST
[email protected]
(The SEC charges a fee to copy documents.)
IN PERSON
Public Reference Room in Washington, DC
(For hours of operation, call
1-202-942-8090)
VIA THE INTERNET
on the EDGAR Database at
http://www.sec.gov
CUSIP Numbers NASDAQ Symbols
Class A Shares--743979-10-6 PTWAX
Class B Shares--743979-20-5 PTWBX
Class C Shares--743979-30-4 PTWCX
Class Z Shares--743979-40-3 PTWZX
Investment Company Act File No. 811-08587
MF183A
[RECYCLED LOGO]
Printed on Recycled Paper
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PRUDENTIAL 20/20 FOCUS FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 31, 2000
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 March 31, 2000, a copy
of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
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PAGE
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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-18
Investment Advisory and Other Services...................... B-19
Brokerage Allocation and Other Practices.................... B-23
Capital Shares, Other Securities and Organization........... B-24
Purchase, Redemption and Pricing of Fund Shares............. B-25
Shareholder Investment Account.............................. B-34
Net Asset Value............................................. B-38
Taxes, Dividends and Distributions.......................... B-39
Performance Information..................................... B-42
Financial Statements........................................ B-44
Report of Independent Accountants........................... B-53
Appendix I--General Investment Information.................. I-1
Appendix II--Historical Performance Data.................... II-1
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MF183B
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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 use the securities, instruments, policies and principal and
non-principal strategies that are further 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; real estate investment trusts (REITs); 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.
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 requirements of the Internal Revenue Code of
1986, as amended (Internal Revenue Code). 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.
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.
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SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. government or instrumentalities of the U.S. government. These obligations,
including those which are guaranteed by Federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Small Business Administration are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Fund must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations such as those issued by the Federal Home Loan Bank, the
Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations.
Obligations issued or guaranteed as to principal and interest by the 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.
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Under 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.
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 member state's national
currency. By July 1, 2002, the euro is expected to become the sole legal tender
of the member states. During the transition period, the Fund will treat the euro
as a separate currency from the national currency of any member state.
The adoption by the member states of the euro will eliminate the substantial
currency risk among member states and will likely affect the investment process
and considerations of the Fund's investment advisers. To the extent the Fund
holds non-U.S. dollar-denominated securities, including those denominated in the
euro, the Fund will still be subject to currency risk due to fluctuations in
those currencies as compared to the U.S. dollar.
The medium- to long-term impact of the introduction of the euro in member
states cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general long-term ramifications
can be expected, such as changes in economic environment and changes in behavior
of investors, all of which will impact the Fund's investments.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
The Fund 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 indexes and futures contracts and options on indexes. The Fund also may
purchase futures contracts on foreign currencies and on debt securities and
aggregates of debt securities. 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 INDEXES
The Fund may purchase and write (that is, sell) put and call options on
securities indexes 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
B-4
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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.
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 indexes 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 indexes 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.
B-5
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RISKS OF OPTIONS ON INDEXES
The Fund's purchase and sale of options on indexes will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indexes create certain risks that are
not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indexes 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 INDEXES
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 indexes only
under the circumstances described below under "Limitations on the Purchase and
Sale of Options on Stock Indexes 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.
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FUTURES CONTRACTS
As a purchaser of a futures contract, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the futures contract
at a specified time in the future for a specified price. As a seller of a
futures contract, the Fund incurs an obligation to deliver the specified amount
of the underlying obligation at a specified time in return for an agreed upon
price. The Fund may purchase futures contracts on stock indexes and foreign
currencies. The Fund may purchase futures contracts on debt securities,
including U.S. government securities, aggregates of debt securities, stock
indexes 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.
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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 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.
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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 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 indexes, 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
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<PAGE>
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 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 INDEXES 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 indexes 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 indexes 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 indexes 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
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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.
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 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
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<PAGE>
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, 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 investment adviser. 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 borrower or 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.
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ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in illiquid securities. If the
Fund were to exceed this limit, the investment advisers would take prompt action
to reduce the Fund's holdings in illiquid securities to no more than 15% of its
net assets, as required by applicable law. Illiquid securities include
repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in markets within or
outside of the United States. 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 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.
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 segregates with its Custodian, State Street Bank and Trust Company,
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 securities,
B-13
<PAGE>
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-convertible 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 year ended
January 31, 2000, the Fund's portfolio turnover rate was 105% and for the fiscal
period ended January 31, 1999, the Fund's portfolio turnover rate was 70%. 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,
foreign currency forward 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 foreign
currency forward 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 THE FUND DURING PAST 5 YEARS
- ------------------------ ---------------------- ---------------------
<S> <C> <C>
Delayne Dedrick Gold (61) Trustee Marketing and Management Consultant.
*Robert F. Gunia (53) Vice President and Trustee Executive Vice President and Chief Administrative Officer
(since June 1999) of Prudential Investments; Corporate
Vice President (September 1997-March 1999) of The
Prudential Insurance Company of America (Prudential);
Executive Vice President and Treasurer (since December
1996) of Prudential Investments Fund Management LLC
(PIFM); President (since April 1999) of Prudential
Investment Management Services LLC (PIMS); formerly
Senior Vice President (March 1987-May 1999) of Prudential
Securities Incorporated (Prudential Securities) and 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.
Douglas H. McCorkindale (60) Trustee Vice Chairman (since March 1984) and President (since
September 1997) of Gannett Co. Inc. (publishing and
media); Director of Gannett Co. Inc., Global Crossing
Ltd. and Continental Airlines, Inc.
Thomas T. Mooney (58) Trustee President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; former Deputy
Monroe County Executive; Trustee of Center for
Governmental Research, Inc.; Director of Blue Cross of
Rochester, Monroe County Water Authority and Executive
Service Corps of Rochester.
Stephen P. Munn (57) 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).
*David R. Odenath, Jr. (42) Vice President and Trustee Officer in Charge, President, Chief Executive Officer and
Chief Operating Officer (since June 1999), PIFM; Senior
Vice President (since June 1999), Prudential; formerly
Senior Vice President (August 1993-May 1999), PaineWebber
Group, Inc.
Richard A. Redeker (56) 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.
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH THE FUND DURING PAST 5 YEARS
- ------------------------ ---------------------- ---------------------
<S> <C> <C>
Robin B. Smith (60) 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.
*John R. Strangfeld, Jr. (45) President and Director Chief Executive Officer, Chairman, President and Director
(since January 1990), of The Prudential Investment
Corporation, Executive Vice President (since
February 1998), Prudential Global Asset Management Group
of Prudential, and Chairman (since August 1989), Pricoa
Capital Group; formerly various positions to Chief
Executive Officer (November 1994-December 1998), Private
Asset Management Group of Prudential and Senior Vice
President (January 1986-August 1989), Prudential Capital
Group, a unit of Prudential.
Louis A. Weil, III (58) 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.
Clay T. Whitehead (61) Trustee President (since May 1983) of National Exchange Inc. (new
business development firm).
Grace C. Torres (40) 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.
Marguerite E. H. Morrison (43) 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.
William V. Healey (46) Assistant Secretary Vice President and Associate General Counsel of Prudential
and Chief Legal Officer of The Prudential Investment
Corporation since August 1998; Director, ICI Mutual
Insurance Company since June 1999; prior to August 1998,
Associate General Counsel of The Dreyfus Corporation
(Dreyfus), a subsidiary of Mellon Bank, N.A. (Mellon
Bank), and an officer and/or director of various
affiliates of Mellon Bank and Dreyfus.
Stephen M. Ungerman (46) 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.
** 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.
B-17
<PAGE>
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.
The Trustees have adopted a retirement policy which calls for the retirement
of Trustees on December 31 of the year in which they reach the age of 75.
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 any Prudential mutual 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, 2000 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, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL 1999
COMPENSATION
AGGREGATE FROM FUND
COMPENSATION COMPLEX PAID
NAME OF TRUSTEE FROM FUND TO TRUSTEES
- --------------- ------------ -------------------
<S> <C> <C>
Edward D. Beach++........................................... $2,000 $142,500(43/70)*
Delayne Dedrick Gold........................................ $2,000 $144,500(43/70)*
Robert F. Gunia+............................................ -- --
Douglas H. McCorkindale**................................... $2,000 $ 80,000(24/49)*
Thomas T. Mooney**.......................................... $2,000 $129,500(35/75)*
Stephen P. Munn............................................. $2,000 $ 62,250(29/53)*
David R. Odenath, Jr.+...................................... -- --
Richard A. Redeker.......................................... $ -- $ 95,000(29/53)*
Robin B. Smith**............................................ $2,000 $ 96,000(32/44)*
John R. Strangfeld, Jr.+.................................... -- --
Louis A. Weil, III.......................................... $2,000 $ 96,000(29/53)*
Clay T. Whitehead........................................... $2,000 $ 77,000(38/66)*
</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, 1999, includes amounts deferred at the
election of Trustees under the funds' deferred compensation plans. Including
accrued interest, total compensation amounted to $97,916, $135,102 and
$156,478 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. Beach retired on December 31, 1999.
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.
B-18
<PAGE>
As of March 10, 2000, the Trustees and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund.
As of March 10, 2000, Prudential Securities was the record holder for other
beneficial owners of 16,268,360 Class A shares (or 76% of the outstanding
Class A shares), 44,667,920 Class B shares (or 80% of the outstanding Class B
shares), 10,474,130 Class C shares (or 93% of the outstanding Class C shares),
and 1,806,050 Class Z shares (or 34% 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 January 31,
2000, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately $74.9 billion. According to
the Investment Company Institute, as of September 30, 1999, the Prudential
mutual funds were the 20th 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 and dividend distribution agent for the Prudential mutual funds and, in
addition, provides customer service, recordkeeping and management and
administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), 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. Effective
January 1, 2000, PIFM receives a management fee at an annual rate of .75 of 1%
of the Fund's average daily net assets up to $1 billion and .70 of 1% of average
daily net assets in excess of $1 billion. 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
B-19
<PAGE>
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 year ended January 31, 2000 and the fiscal period ended January 31,
1999, PIFM received management fees of $7,071,654 and $2,388,789, respectively.
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 was
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
managed. Effective January 1, 2000, PI is paid by PIFM at the annual rate of
.375 of 1% of the average daily net assets of the portion of the assets which PI
manages. Jennison is compensated by PIFM for its 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 and for the fiscal year ended January 31, 2000, Jennison
received $489,185 and $1,422,755, respectively, from PIFM.
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. The Distributor is a subsidiary 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.
B-20
<PAGE>
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
contractually 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, 2001 and contractually limited its
distribution-related fees for the fiscal year ended January 31, 2000 to .25 of
1% of the average daily net assets of the Class A shares.
For the fiscal year ended January 31, 2000, the Distributor received
payments of $513,787 under the Class A Plan. 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 year ended January 31, 2000, the
Distributor also received approximately $1,273,800 in initial sales charges.
CLASS B 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. The
Distributor also receives contingent deferred sales charges from certain
redeeming shareholders and, with respect to Class C shares, an initial sales
charge.
CLASS B PLAN. For the fiscal year ended January 31, 2000, the Distributor
received $5,811,503 from the Fund under the Class B Plan and spent approximately
$8,284,100 in distributing the Class B shares. It is estimated that of the
latter amount, approximately $1,100 was spent on printing and mailing of
prospectuses to other than current shareholders; 15.3% ($1,270,200) 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 B shares; and
84.7% ($7,012,800) was spent on the aggregate of (1) payments of commissions and
account servicing fees to financial advisers (36.0% or $2,976,300) and (2) an
allocation on account of overhead and other branch office distribution-related
expenses (48.7% or $4,036,500). 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 also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. For the
fiscal year ended January 31, 2000, the Distributor received approximately
$1,834,100 in contingent deferred sales charges attributable to Class B shares.
CLASS C PLAN. For the fiscal year ended January 31, 2000, the Distributor
received $1,110,391 from the Fund under the Class C Plan and spent approximately
$1,236,700 in distributing the Fund's Class C shares. It is estimated that of
the latter amount, approximately $200 was spent on printing and mailing of
prospectuses to other than current shareholders; 2.8% ($34,700) 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
97.2% ($1,201,800) 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 (66.9% or $827,700) and (2) an allocation
on account of overhead and other branch office distribution-related expenses
(30.3% or $374,100).
The Distributor also receives initial sales charges and the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions of
Class C shares. For the fiscal year ended January 31, 2000, the Distributor
received approximately $90,400 in contingent deferred sales charges attributable
to Class C shares. For the fiscal year ended January 31, 2000, the Distributor
also received approximately $607,100 in initial sales charges attributable to
Class C shares.
B-21
<PAGE>
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.
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. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for the Class A shares as described above. 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.
B-22
<PAGE>
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants, and in that capacity audits
the annual financial statements of the Fund.
CODES OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics. In addition,
the Manager, Subadvisers and Distributor have each adopted a Code of Ethics (the
Codes). The Codes permit personnel subject to the Codes to invest in securities,
including securities that may be purchased or held by the Fund. However, the
protective provisions of the Codes prohibit certain investments and limit such
personnel from making investments during periods when the Fund is making such
investments. The Codes are on public file with, and are available from, the
Commission.
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.
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.
B-23
<PAGE>
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.
The table below shows certain information regarding the payment of
commissions by the Fund, including the commissions paid to Prudential
Securities, for the year ended January 31, 2000 and the fiscal period ended
January 31, 1999.
<TABLE>
<CAPTION>
YEAR ENDED FISCAL PERIOD ENDED
ITEM JANUARY 31, 2000 JANUARY 31, 1999
---- ----------------------------------- -----------------------------------
<S> <C> <C>
Total brokerage commissions paid by the Fund........... $1,912,646 $1,239,494
Total brokerage commissions paid to Prudential
Securities........................................... $ 23,198 $ 41,267
Percentage of total brokerage commissions paid to
Prudential Securities................................ 1.21% 3.33%
</TABLE>
The Fund effected approximately 0.11% of the total dollar amount of its
transactions involving the payment of commissions to Prudential Securities
during the fiscal year ended January 31, 2000. Of the total brokerage
commissions paid during that period, $163,715 (or 8.6%) 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, 2000. As of January 31, 2000, the Fund held
debt securities of the following: Bear, Stearns & Co., Inc. ($8,386,000); Credit
Suisse First Boston Corp. ($11,181,000); Greenwich Capital Markets, Inc.
($5,591,000); and Goldman, Sachs & Co. ($12,890,000).
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 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
B-24
<PAGE>
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 fundamental investment policies related thereto.
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 complete an
application and 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, fund and 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 or Class Z shares and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing federal funds. The minimum amount which may be invested by wire is
$1,000.
B-25
<PAGE>
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, 2000, 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............................. $13.18
Maximum sales charge (5% of offering
price).................................... .69
------
Maximum offering price to public........... $13.87
======
CLASS B
Net asset value, redemption price and
offering price per Class B share*......... $13.04
======
CLASS C
Net asset value and redemption price per
Class C share*............................ $13.04
Sales charge (1% of offering price)........ .13
------
Offering price to public................... $13.17
======
CLASS Z
Net asset value, offering price and
redemption price per Class Z share........ $13.20
======
</TABLE>
--------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions.
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 for more than 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
B-26
<PAGE>
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. Certain group retirement and savings plans may purchase
Class A shares without the initial sales charge if they meet the required
minimum amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.
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
- Members of the Board of Directors of Prudential
- Real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Prusec or with the Transfer
Agent
- 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 or 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)
- 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).
Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one class
of shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.
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-27
<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
- 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.
LETTERS OF INTENT. Reduced sales charges also are available to investors (or
an eligible group of related investors) 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 no longer qualify to purchase Class A shares
at NAV by entering into a 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 or
its affiliates and through your broker will not be aggregated to determine the
reduced sales charge.
An Investment Letter of Intent permits a purchaser to establish a total
investment goal to be achieved by any number of investments over a
thirteen-month period. Each investment made during the period will receive the
reduced sales charge applicable to the amount represented by the goal, as if it
were a single investment. Escrowed Class A shares totaling 5% of the dollar
amount of the Letter of Intent will be held by the Transfer Agent in the name of
the purchaser. The effective date of an Investment Letter of Intent may be
back-dated up to 90 days, in order that any investments made during this 90-day
period, valued at the purchaser's cost, can be applied to the fulfillment of the
Letter of Intent goal.
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser 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. 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 be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.
B-28
<PAGE>
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. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.
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 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
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes mutual funds as investment options and the Fund as an
available option. Class Z shares also can be purchased by investors in certain
programs sponsored by broker-dealers, 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, links its clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services
- Mutual fund "supermarket" programs where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor charges
a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares also are available for purchase by
the following categories of investors:
- 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 investment option
- Current and former Director/Trustees of the Prudential mutual funds
(including the Fund)
- Prudential, with an investment of $10 million or more.
B-29
<PAGE>
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.
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. Rights of accumulation may be applied across the classes
of the Prudential mutual funds. 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.
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 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 $100,000,
(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 "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.
B-30
<PAGE>
REDEMPTION IN KIND. If the Trustees 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
Trustees 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 same 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.
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
B-31
<PAGE>
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
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. For more information, call Prudential at (800) 353-2847.
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.
B-32
<PAGE>
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 (a copy of
medically determinable physical or the trust agreement identifying the grantor will be
mental impairment which can be expected required as well)) is permanently disabled. The
to result in death or to be of letter must also indicate the date of disability.
long-continued and indefinite duration.
Distribution from an IRA or A copy of the distribution form from the custodial
403(b) 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
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or record keeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
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 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.
B-33
<PAGE>
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 at net asset
value per share. 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 dividends or distributions in cash may subsequently
reinvest any 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
reinvestment will be made at the NAV per share next determined after receipt of
the check or proceeds by the Transfer Agent. Shares purchased with reinvested
dividends and/or distributions will not be subject to any CDSC upon redemption.
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 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.
B-34
<PAGE>
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 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 shares of
Prudential Special Money Market Fund, Inc. 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 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.
B-35
<PAGE>
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 a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise.
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)
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...................... $ 105 $ 158 $ 210 $ 263
20 Years...................... 170 255 340 424
15 Years...................... 289 438 578 722
10 Years...................... 547 820 1,093 1,366
5 Years...................... 1,361 2,041 2,721 3,402
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.
B-36
<PAGE>
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. The withdrawal plan provides for
monthly, quarterly, semi-annual or annual redemption 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 systematic 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 systematic 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-37
<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)
<S> <C> <C>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------- ------- -------
<CAPTION>
<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 indexes) 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
B-38
<PAGE>
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 indexes traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last 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 is qualified as, intends to remain qualified as and has elected to
be treated 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. Net capital gains of the Fund which are
available for distribution to shareholders will be computed by taking into
account any capital loss carryforward of the Fund.
Qualification of the Fund as a regulated investment company under the
Internal Revenue Code requires, among other things, that (a) the Fund derive at
least 90% of its 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 capital gains (that is, the excess of net short-term
capital gains over net long-term capital losses) in each year.
In addition, 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 twelve months ending on October 31 of such calendar year. In
addition, the Fund must distribute during the calendar year all undistributed
B-39
<PAGE>
ordinary income and undistributed capital gain net income from the prior
calendar 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 non-deductible 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.
Gains or losses on sales of securities by the Fund generally 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 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.
Certain futures contracts and certain listed options (referred to as
Section 1256 contracts) held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold at
their fair market value on the last day of the Fund's taxable year. Sixty
percent of any gain or loss recognized on these 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 indexes 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 are treated as ordinary gain or loss.
These gains or losses, 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, thereby 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. In addition, dividends and capital gains
distributions also may be subject to state and local 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.
B-40
<PAGE>
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 distributions 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. Foreign shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences resulting from
their investment in the Fund.
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 certain 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 and lower
on Class A shares in relation to Class Z 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."
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 it 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 resulting from their investment in the Fund.
Shareholders are advised to consult their own tax advisers with respect to
the federal, state and local tax consequences resulting from their investment in
the Fund.
B-41
<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, 2000.
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (7/1/98)
-------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Class A.................................... 14.07% N/A N/A 18.80%
Class B.................................... 14.16 N/A N/A 19.46
Class C.................................... 16.97 N/A N/A 20.96
Class Z.................................... 20.25 N/A N/A 22.90
</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, 2000.
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (7/1/98)
-------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Class A.................................... 20.07% N/A N/A 38.32%
Class B.................................... 19.16 N/A N/A 36.57
Class C.................................... 19.16 N/A N/A 36.57
Class Z.................................... 20.25 N/A N/A 38.67
</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.
B-42
<PAGE>
ADVERTISING. Advertising materials for the Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.
From time to time, advertising materials for the Fund may include
information concerning retirement and investing for retirement, may refer to the
approximate number of Fund shareholders and may refer to Lipper rankings or
Morningstar ratings, other related analysis supporting those ratings, other
industry publications, business periodicals and market indexes. In addition,
advertising materials may reference studies or analyses performed by the Manager
or its affiliates. Advertising materials for sector funds, funds that focus on
market capitalizations, index funds and international/global funds may discuss
the potential benefits and risks of that investment style. Advertising materials
for fixed-income funds may discuss the benefits and risks of investing in the
bond market including discussions of credit quality, duration and maturity.
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
(12/31/1925-12/31/1999)
COMMON STOCKS--11.4%
LONG-TERM GOV'T BONDS--5.1%
INFLATION--3.1%
- ------------------------
(1)Source: Ibbotson Associates. Used with permission. All rights reserved.
Common stock returns are based on the Standard & Poor's 500 Composite Stock
Price 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.
B-43
<PAGE>
Portfolio of Investments as of January 31, 2000
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--95.2%
COMMON STOCKS
------------------------------------------------------------
Banks & Financial Services--6.4%
956,500 Citigroup, Inc. $ 54,938,969
182,800 Morgan (J.P.) & Co., Inc. 22,450,125
--------------
77,389,094
- ------------------------------------------------------------
Chemicals--1.5%
459,600 Eastman Chemical Co. 18,326,550
- ------------------------------------------------------------
Computer Hardware--6.4%
879,400 Compaq Computer Corp. 24,073,575
499,200 Hewlett-Packard Co. 54,038,400
--------------
78,111,975
- ------------------------------------------------------------
Computer Software & Services--12.2%
537,000 Cisco Systems, Inc.(a) 58,801,500
521,500 EMC Corp.(a) 55,539,750
346,100 Microsoft Corp.(a) 33,874,537
--------------
148,215,787
- ------------------------------------------------------------
Diversfied Consumer Products--4.5%
489,400 Loews Corp. 27,406,400
1,312,700 Philip Morris Companies, Inc. 27,484,656
--------------
54,891,056
- ------------------------------------------------------------
Electronic Components--4.4%
494,700 Texas Instruments, Inc. 53,365,762
- ------------------------------------------------------------
Entertainment--0.1%
67,700 Park Place Entertainment Corp. 710,850
- ------------------------------------------------------------
Forest Products--3.7%
686,600 Mead Corp. 25,575,850
352,500 Temple-Inland, Inc. 19,717,969
--------------
45,293,819
Health Care--9.1%
1,238,400 Columbia/HCA Healthcare Corp. $ 33,823,800
1,688,000 Tenet Healthcare Corp.(a) 38,402,000
567,200 Wellpoint Health Networks, Inc. 38,569,600
--------------
110,795,400
- ------------------------------------------------------------
Hotels--2.0%
2,790,600 Hilton Hotels Corp. 23,545,688
- ------------------------------------------------------------
Insurance--4.7%
444,025 American International Group, Inc. 46,234,103
448,800 SAFECO Corp. 10,995,600
--------------
57,229,703
- ------------------------------------------------------------
Media--5.4%
567,200 CBS Corp. 33,074,850
377,400 Clear Channel Communications,
Inc.(a) 32,597,925
--------------
65,672,775
- ------------------------------------------------------------
Office Equipment & Supplies--2.7%
1,000,800 Harris Corp. 29,023,200
1,000,800 Lanier Worldwide 3,502,800
--------------
32,526,000
- ------------------------------------------------------------
Photography--3.1%
604,100 Eastman Kodak Co. 37,378,688
- ------------------------------------------------------------
Precious Metals--2.6%
1,972,400 Freeport-McMoRan Copper & Gold,
Inc.(a) 31,558,400
- ------------------------------------------------------------
Retail--6.5%
1,256,400 Dillards Department Stores, Inc. 24,107,175
408,300 Tandy Corp. 19,955,662
475,800 Tiffany & Co. 35,209,200
--------------
79,272,037
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-44
<PAGE>
Portfolio of Investments as of January 31, 2000 PRUDENTIAL 20/20 FOCUS FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Telecommunications--19.9%
1,954,900 Loral Space & Communications, Inc. $ 38,364,913
435,600 NTL, Inc. 54,803,925
1,238,700 Qwest Communications
International, Inc. 48,773,812
428,900 Univision Communications, Inc.(a) 45,945,913
951,800 Vodafone AirTouch PLC (ADR) 53,300,800
--------------
241,189,363
--------------
Total long-term investments
(cost $999,000,792) 1,155,472,947
--------------
------------------------------------------------------------
SHORT-TERM INVESTMENTS--5.4%
Principal Amount
(000)
- ------------------------------------------------------------
Commercial Paper--2.1%
$ 25,356 American Express Co.,
5.72%, 02/01/00
(cost $25,356,000) 25,356,000
--------------
- ------------------------------------------------------------
Repurchase Agreement--3.3%
39,443 Joint Repurchase Agreement
Account,
5.71%, 02/01/00
(cost $39,443,000; Note 5) 39,443,000
--------------
Total short-term investments
(cost $64,799,000) 64,799,000
--------------
- ------------------------------------------------------------
Total Investments--100.6%
(cost $1,063,799,792; Note 4) 1,220,271,947
Liabilities in excess of other
assets--(0.6%) (6,821,022)
--------------
Net Assets--100% $1,213,450,925
--------------
--------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-45
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets January 31, 2000
Investments, at value (cost $1,063,799,792)............................................................... $1,220,271,947
Cash...................................................................................................... 13,066
Receivable for investments sold........................................................................... 8,826,311
Receivable for Fund shares sold........................................................................... 5,299,946
Dividends and interest receivable......................................................................... 261,823
Prepaid expenses.......................................................................................... 8,667
----------------
Total assets........................................................................................... 1,234,681,760
----------------
Liabilities
Payable for investments purchased......................................................................... 15,913,874
Payable for Fund shares repurchased....................................................................... 3,429,262
Distribution fee payable.................................................................................. 814,029
Management fee payable.................................................................................... 784,763
Accrued expenses.......................................................................................... 288,907
----------------
Total liabilities...................................................................................... 21,230,835
----------------
Net Assets................................................................................................ $1,213,450,925
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 92,787
Paid-in capital in excess of par....................................................................... 1,000,744,200
----------------
1,000,836,987
Accumulated net realized gain on investments........................................................... 56,141,783
Net unrealized appreciation on investments............................................................. 156,472,155
----------------
Net assets, January 31, 2000.............................................................................. $1,213,450,925
----------------
----------------
Class A:
Net asset value and redemption price per share
($270,027,206 DIVIDED BY 20,485,752 shares of beneficial interest issued and outstanding)........... $13.18
Maximum sales charge (5% of offering price)............................................................ .69
----------------
Maximum offering price to public....................................................................... $13.87
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($729,338,711 DIVIDED BY 55,946,324 shares of beneficial interest issued and outstanding)........... $13.04
----------------
----------------
Class C:
Net asset value and redemption price per share
($145,733,098 DIVIDED BY 11,179,083 shares of beneficial interest issued and outstanding)........... $13.04
Sales charge (1% of offering price).................................................................... .13
----------------
Offering price to public............................................................................... $13.17
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($68,351,910 DIVIDED BY 5,176,394 shares of beneficial interest issued and outstanding)............. $13.20
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-46
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Loss January 31, 2000
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $32,280)............................. $ 8,150,726
Interest................................... 2,199,254
----------------
Total income............................ 10,349,980
----------------
Expenses
Management fee............................. 7,071,654
Distribution fee--Class A.................. 513,787
Distribution fee--Class B.................. 5,811,503
Distribution fee--Class C.................. 1,110,391
Transfer agent's fees and expenses......... 1,105,000
Registration fees.......................... 251,000
Reports to shareholders.................... 210,000
Custodian's fees and expenses.............. 170,000
Legal fees and expenses.................... 35,000
Amortization of deferred offering costs.... 28,000
Audit fees and expenses.................... 27,000
Trustees' fees and expenses................ 18,000
Miscellaneous.............................. 880
----------------
Total expenses.......................... 16,352,215
----------------
Net investment loss........................... (6,002,235)
----------------
Realized and Unrealized Gain on Investments Net realized gain on:
Investment transactions.................... 118,380,454
Net change in unrealized appreciation on
investments............................. 60,959,722
----------------
Net gain on investments....................... 179,340,176
----------------
Net Increase in Net Assets
Resulting from Operations..................... $173,337,941
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL 20/20 FOCUS FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
Year July 1, 1998(a)
Increase in Ended Through
Net Assets January 31, 2000 January 31, 1999
<S> <C> <C>
Operations
Net investment loss........... $ (6,002,235) $ (1,316,014)
Net realized gain (loss) on
investments................ 118,380,454 (5,548,276)
Net change in unrealized
appreciation on
investments................ 60,959,722 95,512,433
---------------- ----------------
Net increase in net assets
resulting from
operations................. 173,337,941 88,648,143
---------------- ----------------
Dividends and distributions (Note
1)
Distributions from net
realized gains
Class A.................... (11,076,868) --
Class B.................... (30,844,040) --
Class C.................... (6,030,035) --
Class Z.................... (2,663,051) --
---------------- ----------------
(50,613,994) --
---------------- ----------------
Tax return of capital
distribution
Class A.................... -- (349,450)
Class B.................... -- (35,325)
Class C.................... -- (6,617)
Class Z.................... -- (44,675)
---------------- ----------------
-- (436,067)
---------------- ----------------
Fund share transactions (net of share conversions) (Note 6)
Proceeds from shares sold..... 561,896,628 689,777,037
Net asset value of shares
issued in reinvestment of
distributions.............. 48,732,464 422,572
Cost of shares reacquired..... (227,459,344) (70,954,455)
---------------- ----------------
Net increase in net assets
from Fund share
transactions............... 383,169,748 619,245,154
---------------- ----------------
Total increase................... 505,893,695 707,457,230
Net Assets
Beginning of period.............. 707,557,230 100,000
---------------- ----------------
End of period.................... $ 1,213,450,925 $707,557,230
---------------- ----------------
---------------- ----------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-47
<PAGE>
Notes to Financial Statements 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. The Fund issued 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").
- ------------------------------------------------------------
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 traded on a national securities exchange and
NASDAQ National Market System securities are valued at the last reported sales
price on the primary exchange on which they are traded or, if there was no sale,
at the mean between the last bid and asked prices or at the last bid price in
the absence of an asked price. Securities for which reliable market quotations
are not readily available are valued by the Valuation Committee or Board of
Trustees in consultation with the Manager and Subadvisers.
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.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with United States 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.
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 continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income 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.
OFFERING AND ORGANIZATION EXPENSES: Approximately $96,000 was incurred and
expensed in connection with the organization of the Fund. Offering cost of
approximately $67,000 were amortized ratably over a period of twelve months from
the date the Fund commenced investment operations.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants, Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income; Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of
applying this statement was to decrease net investment loss by $6,002,235,
decrease accumulated net realized gain on investments by $5,974,712 and
decrease paid-in capital in excess of par by $27,523 due to a net operating
loss and certain non-deductible expenses for the year ended January 31, 2000.
Net investment income, net realized gains and net assets were not affected by
this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with 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
- --------------------------------------------------------------------------------
B-48
<PAGE>
Notes to Financial Statements PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
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 appropriate. In addition,
there will be periodic rebalancing of the portfolio's assets to take account of
market fluctuations in order to maintain the approximately equal allocation. As
a consequence, the portfolio will allocate assets from the better performing of
the two Subadvisers to the other.
The management fee paid to PIFM is computed daily and payable monthly, at an
annual rate of .75 of 1% of the Fund's average daily net assets up to and
including $1 billion and .70 of 1% of such average daily net assets in excess of
$1 billion. 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 average
daily net assets of the portion of the Fund 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 year ended January 31, 2000.
PIMS has advised the Fund that it has received approximately $1,273,800 and
$607,100 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the year ended January 31, 2000. From these fees,
PIMS paid such sales charges to affiliated broker-dealers which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that it has received approximately $1,834,100 and
$90,400 in contingent deferred sales charges imposed upon certain redemptions by
Class B and Class C shareholders, respectively.
PIFM, PIMS, PIC and Jennison are wholly owned subsidiaries of The Prudential
Insurance Company of America ("Prudential").
The Fund, along with other affiliated registered investment companies (the
"Funds"), entered into a syndicated credit agreement ("SCA") with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion and
interest on any borrowings will be at market rates. For the period
3/11/99-3/9/00, the commitment fee on the unused portion of the credit
facility was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed
with a maximum commitment of $1 billion at a commitment fee of .080 of 1% of
the unused portion of the credit facility. The expiration date of the SCA is
March 9, 2001. The commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds. Prior to March 11, 1999, the Funds had a credit agreement
with a maximum commitment of $200,000,000. The commitment fee was .055 of 1%
on the unused portion of the credit facility. The Fund did not borrow any
amounts during the year ended January 31, 2000. The purpose of the credit
agreements is to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
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 year ended January 31, 2000,
the Fund incurred fees of approximately $968,000 for the services of PMFS. As of
January 31, 2000, approximately $99,000 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 year ended January 31, 2000, Prudential Securities Incorporated, an
indirect wholly owned subsidiary of Prudential, earned $23,200 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 year ended January 31, 2000 aggregated $1,238,248,684 and $942,258,368,
respectively.
- --------------------------------------------------------------------------------
B-49
<PAGE>
Notes to Financial Statements PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
The federal income tax basis of the Fund's investments at January 31, 2000 was
$1,064,087,228 and, accordingly, net unrealized appreciation for federal income
tax purposes was $156,184,719 (gross unrealized appreciation--$221,275,853;
gross unrealized depreciation--$65,091,134).
For federal income tax purposes, the Fund utilized its capital loss
carryforward of approximately $3,039,528 to partially offset the Fund's net
taxable gains realized and recognized in the year ended January 31, 2000.
- ------------------------------------------------------------
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 January 31, 2000, the
Fund had a 5.6% undivided interest in repurchase agreements in the joint
account. The undivided interest for the Fund represented $39,443,000 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., Inc., 5.72%, in the principal amount of $150,000,000,
repurchase price $150,023,833, due 02/01/00. The value of the collateral
including accrued interest was $153,133,078.
Credit Suisse First Boston Corporation, 5.74%, in the principal amount of
$75,000,000, repurchase price $75,011,958, due 02/01/00. The value of the
collateral including accrued interest was $77,491,043.
Credit Suisse First Boston Corporation, 5.73%, in the principal amount of
$125,000,000, repurchase price $125,019,896, due 02/01/00. The value of the
collateral including accrued interest was $129,169,641.
Greenwich Capital Markets, Inc., 5.72%, in the principal amount of $100,000,000,
repurchase price $100,015,888, due 02/01/00. The value of the collateral
including accrued interest was $102,001,008.
Goldman, Sachs & Co., 5.70%, in the principal amount of $230,536,000, repurchase
price $230,572,502, due 02/01/00. The value of the collateral including accrued
interest was $235,147,150.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.60%, in the principal amount of
$25,000,000, repurchase price $25,003,889, due 02/01/00. The value of the
collateral including accrued interest was $25,501,335.
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 front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares 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 or redemption 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>
Year ended January 31, 2000:
Shares sold.......................... 10,107,012 $125,259,647
Shares issued in reinvestment of
distributions...................... 830,011 10,649,040
Shares reacquired.................... (5,052,322) (62,914,846)
---------- ------------
Net increase in shares outstanding
before conversion.................. 5,884,701 72,993,841
Shares issued upon conversion from
Class B............................ 698,940 8,763,860
---------- ------------
Net increase in shares outstanding... 6,583,641 $ 81,757,701
---------- ------------
---------- ------------
July 1, 1998(a) through January 31, 1999:
Shares sold.......................... 16,742,582 $167,315,504
Shares issued in reinvestment of
distributions...................... 33,206 338,369
Shares reacquired.................... (2,906,652) (28,864,601)
---------- ------------
Net increase in shares outstanding
before conversion.................. 13,869,136 138,789,272
Shares issued upon conversion from
Class B............................ 30,475 305,798
---------- ------------
Net increase in shares outstanding... 13,899,611 $139,095,070
---------- ------------
---------- ------------
<CAPTION>
Class B
- -------------------------------------
<S> <C> <C>
Year ended January 31, 2000:
Shares sold.......................... 23,777,037 $291,788,460
Shares issued in reinvestment of
distributions...................... 2,324,567 29,545,248
Shares reacquired.................... (8,189,070) (101,234,812)
---------- ------------
Net increase in shares outstanding
before conversion.................. 17,912,534 220,098,896
Shares reacquired upon conversion
into Class A....................... (704,230) (8,763,860)
---------- ------------
Net increase in shares outstanding... 17,208,304 $211,335,036
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-50
<PAGE>
Notes to Financial Statements PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
July 1, 1998(a) through January 31, 1999:
Shares sold.......................... 41,599,322 $415,817,933
Shares issued in reinvestment of
distributions...................... 3,323 33,793
Shares reacquired.................... (2,836,718) (27,718,475)
---------- ------------
Net increase in shares outstanding
before conversion.................. 38,765,927 388,133,251
Shares reacquired upon conversion
into Class A....................... (30,407) (305,798)
---------- ------------
Net increase in shares outstanding... 38,735,520 $387,827,453
---------- ------------
---------- ------------
<CAPTION>
Class C
- -------------------------------------
<S> <C> <C>
Year ended January 31, 2000:
Shares sold.......................... 5,803,272 $ 71,399,010
Shares issued in reinvestment of
distributions...................... 463,070 5,885,623
Shares reacquired.................... (2,166,404) (26,773,332)
---------- ------------
Net increase in shares outstanding... 4,099,938 $ 50,511,301
---------- ------------
---------- ------------
July 1, 1998(a) through January 31, 1999:
Shares sold.......................... 7,993,762 $ 80,272,330
Shares issued in reinvestment of
distributions...................... 630 6,403
Shares reacquired.................... (917,747) (8,944,615)
---------- ------------
Net increase in shares outstanding... 7,076,645 $ 71,334,118
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -------------------------------------
<S> <C> <C>
Year ended January 31, 2000:
Shares sold.......................... 5,930,034 $ 73,449,511
Shares issued in reinvestment of
distributions...................... 206,424 2,652,553
Shares reacquired.................... (2,952,230) (36,536,354)
---------- ------------
Net increase in shares outstanding... 3,184,228 $ 39,565,710
---------- ------------
---------- ------------
July 1, 1998(a) through January 31, 1999:
Shares sold.......................... 2,526,447 $ 26,371,270
Shares issued in reinvestment of
distributions...................... 4,323 44,007
Shares reacquired.................... (541,104) (5,426,764)
---------- ------------
Net increase in shares outstanding... 1,989,666 $ 20,988,513
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class A, B, C and Z shares.
- --------------------------------------------------------------------------------
B-51
<PAGE>
Financial Highlights PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------------- -------------------------------- -----------
July 1, 1998(a) July 1, 1998(a)
Year Ended Through Year Ended Through Year Ended
January 31, January 31, January 31, January 31, January 31,
2000(e) 1999(e) 2000(e) 1999(e) 2000(e)
----------- ----------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.49 $ 10.00 $ 11.46 $ 10.00 $ 11.46
----------- ------- ----------- ------- -----------
Income from investment operations
Net investment income (loss)......... (.01) .01 (.10) (.04) (.10)
Net realized and unrealized gain on
investments and foreign
currencies........................ 2.30 1.51 2.28 1.50 2.28
----------- ------- ----------- ------- -----------
Total from investment
operations..................... 2.29 1.52 2.18 1.46 2.18
----------- ------- ----------- ------- -----------
Less distributions:
Distributions from net realized
gains............................. (.60) -- (.60) -- (.60)
Tax return of capital distribution... -- (.03) -- --(d) --
----------- ------- ----------- ------- -----------
Total distributions............... (.60) (.03) (.60) -- (.60)
----------- ------- ----------- ------- -----------
Net asset value, end of period....... $ 13.18 $ 11.49 $ 13.04 $ 11.46 $ 13.04
----------- ------- ----------- ------- -----------
----------- ------- ----------- ------- -----------
TOTAL RETURN(b):..................... 20.07% 15.19% 19.16% 14.61% 19.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 270,027 $ 159,777 $ 729,339 $443,798 $ 145,733
Average net assets (000)............. $ 205,515 $ 131,335 $ 581,150 $334,157 $ 111,039
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.20% 1.32%(c) 1.95% 2.07%(c) 1.95%
Expenses, excluding distribution
fees........................... .95% 1.07%(c) .95% 1.07%(c) .95%
Net investment income (loss)...... (.10)% .13%(c) (.85)% (.62)%(c) (.84)%
For Class A, B, C and Z shares
Portfolio turnover................... 105% 70%
<CAPTION>
Class Z
--------------------------------
July 1, 1998(a) July 1, 1998(a)
Through Year Ended Through
January 31, January 31, January 31,
1999(e) 2000(e) 1999(e)
---------------- ----------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.00 $ 11.49 $ 10.00
------ ----------- ------
Income from investment operations
Net investment income (loss)......... (.03) .02 .02
Net realized and unrealized gain on
investments and foreign
currencies........................ 1.49 2.29 1.51
------ ----------- ------
Total from investment
operations..................... 1.46 2.31 1.53
------ ----------- ------
Less distributions:
Distributions from net realized
gains............................. -- (.60) --
Tax return of capital distribution... --(d) -- (.04)
------ ----------- ------
Total distributions............... -- (.60) (.04)
------ ----------- ------
Net asset value, end of period....... $ 11.46 $ 13.20 $ 11.49
------ ----------- ------
------ ----------- ------
TOTAL RETURN(b):..................... 14.61% 20.25% 15.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 81,100 $ 68,352 $ 22,882
Average net assets (000)............. $ 64,848 $ 45,183 $ 12,905
Ratios to average net assets:
Expenses, including distribution
fees........................... 2.07%(c) .95% 1.07%(c)
Expenses, excluding distribution
fees........................... 1.07%(c) .95% 1.07%(c)
Net investment income (loss)...... (.62)%(c) .16% .38%(c)
For Class A, B, C and Z shares
Portfolio turnover...................
</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.
(d) Less than .005 per share.
(e) Calculations are made based on average month-end shares outstanding during
the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-52
<PAGE>
Report of Independent Accountants PRUDENTIAL 20/20 FOCUS FUND
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees of
Prudential 20/20 Focus Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential 20/20 Focus Fund (the
"Fund") at January 31, 2000, the results of its operations for the year then
ended, the changes in its net assets and the financial highlights for the year
then ended and for the period July 1, 1998 (commencement of operations) through
January 31, 1999, in conformity with accounting principles generally accepted in
the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at January 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
March 21, 2000
- --------------------------------------------------------------------------------
B-53
<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 1/1/1926 THROUGH 12/31/1999
SMALL STOCKS--$6,640.79
COMMON STOCKS--$2,845.63
LONG-TERM BONDS--$40.22
TREASURY BILLS--$15.64
INFLATION--$9.40
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 1989
through 1999. The total returns of the indexes 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>
YEAR 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0% (2.56)%
--------------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0% 1.86%
--------------------------------------------------------------------------------------------------
U.S. INVESTMENT
GRADE
CORPORATE BONDS(3) 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6% (1.96)%
--------------------------------------------------------------------------------------------------
U.S. HIGH YIELD
BONDS(4) 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6% 2.39%
--------------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS(5) (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3% (5.07)%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST AND LOWEST
RETURNS PERCENT 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.1 8.4 7.46
</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. Source: 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, 1999. It does not represent
the performance of any Prudential mutual fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS (12/31/85 - 12/31/99)
(IN U.S. DOLLARS)
EDGAR REPRESENTATION OF CHART
SWEDEN 22.70%
HONG KONG 20.37%
SPAIN 20.11%
NETHERLAND 18.63%
BELGIUM 18.41%
FRANCE 17.69%
USA 17.39%
UK 16.41%
EUROPE 16.28%
SWITZERLAND 15.58%
SING/MLYSIA 15.07%
DENMARK 14.72%
GERMANY 13.29%
AUSTRALIA 11.68%
ITALY 11.39%
CANADA 11.10%
JAPAN 9.59%
NORWAY 8.91%
AUSTRIA 7.09%
Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. as of
12/31/99. Used with permission. Morgan Stanley Country indexes are unmanaged
indexes 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 indexes.
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
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION AND CAPITAL
REINVESTING APPRECIATION
DIVIDENDS ONLY
<S> <C> <C>
1969
1973
1977
1981
1985
1989
1993
1997
1999 $474,094 $159,957
</TABLE>
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 Composite Stock Price 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
indexes.
------------------------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: $20.7 TRILLION
CANADA--2.1%
U.S.--49.0%
EUROPE--32.5%
PACIFIC BASIN--16.4%
Source: Morgan Stanley Capital International, December 31, 1999. 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
1,577 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.
EDGAR REPRESENTATION OF CHART
LONG TERM U.S. TREASURY BOND YIELD IN PERCENT (1926-1999)
1926
1936
1946
1956
1966
1976
1986
1996
1999
Year-End
- --------------------------------------------------------------------------------
Source: Ibbotson Associates. Used with permission. All
rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from
1926-1999. 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>
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) Amended By-Laws.*
(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) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management LLC.*
(2) Amended and Restated 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.
Incorporated by reference to Exhibit No. (d)(3) to
Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A (File No. 333-43491) filed on February 25,
1999.
(e) (1) Distribution Agreement between the Registrant and
Prudential Investment Management Services LLC. Incorporated
by reference to Exhibit No. (e)(1) to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
(File No. 333-43491) filed on February 25, 1999.
(2) Form of Selected Dealer Agreement. Incorporated by
reference to Exhibit No. (e)(2) to Post-Effective Amendment
No. 1 to the Registration Statement on Form N-1A (File
No. 333-43491) filed on February 25, 1999.
(g) (1) 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.
(2) Amendment to Custodian Contract.*
(h) (1) Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services LLC.
Incorporated by reference to Exhibit No. (h)(1) to
Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A (File No. 333-43491) filed on February 25,
1999.
(2) Amendment to Transfer Agency Agreement.*
(i) Opinion and consent of counsel.*
(j) Consent of Independent Accountants.*
(l) 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.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
(m) (1) Amended and Restated Distribution and Service Plan for
Class A Shares. Incorporated by reference to Exhibit No.
(m)(1) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-43491) filed on
February 25, 1999.
(2) Amended and Restated Distribution and Service Plan for
Class B Shares. Incorporated by reference to Exhibit No.
(m)(2) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-43491) filed on
February 25, 1999.
(3) Amended and Restated Distribution and Service Plan for
Class C Shares. Incorporated by reference to Exhibit No.
(m)(3) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-43491) filed on
February 25, 1999.
(n) Amended and Restated Rule 18f-3 Plan. Incorporated by
reference to Exhibit No. (o) to Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (File No.
333-43491) filed on February 25, 1999.
(p) (1) Fund's Code of Ethics.*
(2) Manager's, PIC's and Distributor's Code of Ethics.*
(3) Jennison Associates' Code of Ethics.*
</TABLE>
- ------------------------
* Filed herewith.
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
C-2
<PAGE>
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.
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.
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<PAGE>
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>
David R. Odenath, Jr. Officer in Charge, President, Chief Officer in Charge, President, Chief Executive Officer
Executive Officer and Chief Operating and Chief Operating Officer, PIFM; Senior Vice
Officer President, The Prudential Insurance Company of
America (Prudential)
Robert F. Gunia Executive Vice President and Executive Vice President and Treasurer, PIFM;
Treasurer Corporate Vice President, Prudential; President,
Prudential Investment Management Services LLC (PIMS)
William V. Healey Executive Vice President, Chief Legal Executive Vice President, Chief Legal Officer and
Officer and Secretary Secretary, PIFM; Vice President and Associate General
Counsel, Prudential; Senior Vice President, Chief
Legal Officer and Secretary, PIMS
Brian W. Henderson Executive Vice President Executive Vice President, PIFM; Senior Vice President
and Chief Operating Officer, PIMS
Stephen Pelletier Executive Vice President Executive Vice President, PIFM
Judy A. Rice Executive Vice President Executive Vice President, PIFM
Lynn M. Waldvogel Executive Vice President 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>
Jeffrey Hiller Chief Compliance Officer Chief Compliance Officer, Prudential Global Asset
Management
John R. Strangfeld, Chairman of the Board, President, Senior Vice President, Prudential; President,
Jr. Chief Executive Officer and Director Prudential Global Asset Management Group, Prudential;
Chairman of the Board, President, Chief Executive
Officer and Director, PIC
Bernard Winograd Senior Vice President and Director Chief Executive Officer, Prudential Real Estate
Investors (PREI); Senior Vice President and Director,
PIC
</TABLE>
(c) Jennison Associates LLC (Jennison)
C-4
<PAGE>
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 Jennison directors and executive
officers are 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.
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, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Balanced Fund, Prudential California Municipal Fund, Prudential
Diversified Bond Fund, Inc., Prudential Diversified Funds, 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 Total Return 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 International
Bond Fund, Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets,
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 Sector Funds, Inc., 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-Free Money Fund,
Inc., Prudential Tax-Managed Funds, Prudential 20/20 Focus Fund, Prudential
World Fund, Inc., Strategic Partners Series, The Prudential Investment
Portfolios, Inc. Target Funds and The Target Portfolio Trust.
PIMS is also distributor of the following unit investment trusts: Separate
Accounts: Prudential's Gibraltar Fund, Inc., The Prudential Variable Contract
Account -2, The Prudential Variable Contract Account -10, The Prudential
Variable Contract Account -11, The Prudential Variable Contract Account -24, The
Prudential Variable Contract GI-2, The Prudential Discovery Select Group
Variable Contract Account, The Pruco Life Flexible Premium Variable Annuity
Account, The Pruco Life of New Jersey Flexible Premium Variable Annuity Account,
The Prudential Individual Variable Contract Account and The Prudential Qualified
Individual Variable Contract Account.
(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>
Margaret Deverell.......... Vice President and Chief Financial None
Officer
Robert F. Gunia............ President Vice President and
Trustee
Kevin Frawley.............. Senior Vice President and None
213 Washington Street Compliance Officer
Newark, NJ 07102
William V. Healey.......... Senior Vice President, Secretary Assistant Secretary
and Chief Legal Officer
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME (1) UNDERWRITER REGISTRANT
- -------- ------------- -------------
<S> <C> <C>
Brian W. Henderson......... Senior Vice President and Officer None
John R. Strangfeld, Jr..... Advisory Board Member President and Trustee
</TABLE>
- ------------------------
(1) The address of each person named is Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102 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 caption "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. UNDERTAKINGS.
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund certifies that it meets all of the requirements for
effectiveness of this Registration Statement under Rule 485(b) under the
Securities Act and 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 24th day of March, 2000.
<TABLE>
<S> <C>
PRUDENTIAL 20/20 FOCUS FUND
By /s/ JOHN R. STRANGFELD, JR.
------------------------------------------
John R. Strangfeld, Jr., President
</TABLE>
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DELAYNE DEDRICK GOLD
------------------------------------------------ Trustee March 24, 2000
Delayne Dedrick Gold
/s/ ROBERT F. GUNIA
------------------------------------------------ Trustee March 24, 2000
Robert F. Gunia
/s/ DOUGLAS H. MCCORKINDALE
------------------------------------------------ Trustee March 24, 2000
Douglas H. McCorkindale
/s/ THOMAS T. MOONEY
------------------------------------------------ Trustee March 24, 2000
Thomas T. Mooney
/s/ STEPHEN P. MUNN
------------------------------------------------ Trustee March 24, 2000
Stephen P. Munn
/s/ DAVID R. ODENATH, JR.
------------------------------------------------ Trustee March 24, 2000
David R. Odenath, Jr.
/s/ RICHARD A. REDEKER
------------------------------------------------ Trustee March 24, 2000
Richard A. Redeker
/s/ ROBIN B. SMITH
------------------------------------------------ Trustee March 24, 2000
Robin B. Smith
/s/ JOHN R. STRANGFELD, JR.
------------------------------------------------ President and Trustee March 24, 2000
John R. Strangfeld, Jr.
/s/ LOUIS A. WEIL, III
------------------------------------------------ Trustee March 24, 2000
Louis A. Weil, III
/s/ CLAY T. WHITEHEAD
------------------------------------------------ Trustee March 24, 2000
Clay T. Whitehead
/s/ GRACE C. TORRES
------------------------------------------------ Treasurer and Principal Financial March 24, 2000
Grace C. Torres and Accounting Officer
</TABLE>
<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) Amended By-Laws.*
(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) Amended and Restated Management Agreement between the
Registrant and Prudential Investments Fund Management LLC.*
(2) Amended and Restated 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.
Incorporated by reference to Exhibit No. (d)(3) to
Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A (File No. 333-43491) filed on February 25,
1999.
(e) (1) Distribution Agreement between the Registrant and
Prudential Investment Management Services LLC. Incorporated
by reference to Exhibit No. (e)(1) to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
(File No. 333-43491) filed on February 25, 1999.
(2) Form of Selected Dealer Agreement. Incorporated by
reference to Exhibit No. (e)(2) to Post-Effective Amendment
No. 1 to the Registration Statement on Form N-1A (File No.
333-43491) filed on February 25, 1999.
(g) (1) 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.
(2) Amendment to Custodian Contract.*
(h) (1) Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services LLC.
Incorporated by reference to Exhibit No. (h)(1) to
Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A (File No. 333-43491) filed on February 25,
1999.
(2) Amendment to Transfer Agency Agreement.*
(i) Opinion and Consent of Counsel.*
(j) Consent of Independent Accountants.*
(l) 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.
(m) (1) Amended and Restated Distribution and Service Plan for
Class A Shares. Incorporated by reference to Exhibit No.
(m)(1) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-43491) filed on
February 25, 1999.
(2) Amended and Restated Distribution and Service Plan for
Class B Shares. Incorporated by reference to Exhibit No.
(m)(2) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-43491) filed on
February 25, 1999.
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
(3) Amended and Restated Distribution and Service Plan for
Class C Shares. Incorporated by reference to Exhibit No.
(m)(3) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-43491) filed on
February 25, 1999.
(n) Amended and Restated Rule 18f-3 Plan. Incorporated by
reference to Exhibit No. (o) to Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (File No.
333-43491) filed on February 25, 1999.
(p) (1) Fund's Code of Ethics.*
(2) Manager's, PIC's and Distributor's Code of Ethics.*
(3) Jennison Associates' Code of Ethics.*
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
BY-LAWS
OF
PRUDENTIAL 20/20 FOCUS FUND
ARTICLE I
Agreement and Declaration of Trust
Section 1. Agreement and Declaration of Trust. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from time to time amended,
supplemented or restated (the "Declaration of Trust") of Prudential 20/20
Focus Fund (the "Trust").
Section 2. Definitions. Unless otherwise defined herein, the terms used
herein have the respective meanings given them in the Declaration of Trust.
ARTICLE II
Offices
Section 1. Principal Office. The principal office of the Trust shall be
located in the City of Newark, State of New Jersey, or such other location as
the Trustees may from time to time determine.
Section 2. Registered Office and Other Offices. The registered office of
the Trust shall be located in the City of Wilmington, State of Delaware or such
other location within the State of Delaware as the Trustees may from time to
time determine. The Trust may establish and maintain such other offices and
places of business as the Trustees may from time to time determine.
ARTICLE III
Shareholders
Section 1. Meetings. Meetings of the Shareholders shall be held at the
principal executive offices of the Trust or at such other place within the
United States of America as the Trustees shall designate. Meetings of the
Shareholders shall be called by the Secretary whenever (i) ordered by the
Trustees or (ii) for the purpose of voting on the removal of any Trustee,
requested in writing by Shareholders holding at least ten percent (10%) of the
outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than 10 days to call such meetings, the
Trustees or the Shareholders
<PAGE>
so requesting, may, in the name of the Secretary, call the meeting by giving
notice thereof in the manner required when notice is given by the Secretary.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Secretary by delivering or mailing, postage prepaid, to each Shareholder at his
or her address as recorded on the register of the Trust at least ten (10) days
and not more than ninety (90) days before the meeting. Only the business stated
in the notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need be given
to any Shareholder who shall have failed to inform the Trust of his or her
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder or his or her attorney thereunto authorized, is filed
with the records of the meeting.
Section 3. Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than ninety (90) days
prior to the date of any meeting of Shareholders as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken;
provided, however, that notwithstanding any other provision of this Section 4 to
the contrary, the Trustees may at any time adopt one or more electronic,
telecommunication or other alternatives to execution of a written instrument
that will enable holders of Shares entitled to vote at any meeting to appoint a
proxy to vote such holders' Shares at such meeting. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote, and each fractional share shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one
2
<PAGE>
of them may vote at any meeting in person or by proxy in respect of such Share,
but if more than one of them shall be present at such meeting in person or by
proxy, and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or the legal
control of any other person as regards the charge or management of such Share,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting. Except as otherwise provided herein or in the Declaration of Trust, all
matters relating to the giving, voting or validity of proxies shall be governed
by the General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
Section 5. Inspection of Books. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
Shareholders.
Section 6. Action without Meeting. Any action that may be taken at any
meeting of Shareholders may be taken without a meeting and without prior notice
if a consent in writing setting forth the action so taken is signed by the
holders of outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all Shares entitled to vote on that action were present and voted. All such
consents shall be filed with the records of Shareholder meetings. Such consents
shall be treated for all purposes as a vote taken at a meeting of Shareholders.
3
<PAGE>
Section 7. Application of this Article. Meetings of Shareholders shall
consist of Shareholders of any Series (or Class thereof) or of all Shareholders,
as determined pursuant to the Declaration of Trust, and this Article shall be
construed accordingly.
ARTICLE IV
Trustees
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman, the President,
or by any two of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustees calling
the meeting and shall be delivered or mailed, postage prepaid, to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or wired
to each Trustee at his or her business address, or personally delivered to him
or her, at least one day before the meeting. Such notice may, however, be waived
by any Trustees. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before the meeting, is filed
with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. A notice or waiver of notice need not specify the purpose of any
meeting. The Trustees may meet by means of a telephone conference circuit or
similar communications equipment by means of which all persons participating in
the meeting are connected, which meeting shall be deemed to have been held at a
place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if a majority of the Trustees then in
office (or such higher number of Trustees as would be required to act on the
matter under the Declaration of Trust, these By-Laws or applicable law if a
meeting were held) consent to the action in writing and the written consents are
filed with the records of the Trustees' meetings. Such consents shall be treated
for all purposes as a vote taken at a meeting of the
4
<PAGE>
Trustees. Notwithstanding the foregoing, all actions of the Trustees shall be
taken in compliance with the provisions of the Investment Company Act of 1940,
as amended.
Section 2. Quorum and Manner of Acting. A majority of the Trustees then in
office shall constitute a quorum for the transaction of business. If at any
meeting of the Trustees there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum shall be
obtained. Notice of an adjourned meeting need not be given. The act of the
majority of the Trustees present at any meeting at which there is a quorum shall
be the act of the Trustees, except as may be otherwise specifically provided by
law or by the Declaration of Trust or by these By-Laws.
ARTICLE V
Committees
Section 1. Operating and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Operating
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers by law, the Declaration of Trust or these By-laws they are prohibited
from delegating. The Trustees may also elect from their own number or otherwise
other Committees from time to time, the number composing such Committees, the
powers conferred upon the same (subject to the same limitations as with respect
to the Operating Committee), the terms of membership on such Committees and the
termination or circumstances giving rise to the termination of such Committees
to be determined by the Trustees. The Trustees may designate a chairman of any
such Committee. In the absence of such designation the Committee may elect its
own chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for special meeting of any Committee, (3) specify the number
of members of a Committee required to constitute a quorum and the numbers of
members of a Committee required to exercise specified powers delegated to such
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Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the requisite number of members of a Committee without a
meeting, and (5) authorize the members of a Committee to meet by means of a
telephone conference circuit. The Operating Committee shall keep regular minutes
of its meetings and records of decisions taken without a meeting and cause them
to be recorded in a book designated for that purpose and kept at the principal
executive offices of the Trust.
ARTICLE VI
Officers
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including a Chairman of the Board ("Chairman"), one or
more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration of Trust or these By-Laws, the President, the Treasurer
and the Secretary, and all other officers shall hold office at the pleasure of
the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall hold no other office, but
may be a Trustee of the Trust. Except as above provided, any two offices may be
held by the same person. The Chairman, if there be one, shall be a Trustee and
may but need not be a Shareholder. Any other officer may be but none need be a
Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the Chairman. The Chairman, if such an
officer is elected, shall if present preside at meetings of the Shareholders and
the Trustees, shall be the chief executive officer of the Trust and shall,
subject to the control of the Trustees, have general supervision, direction and
control of
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the business and the officers of the Trust and exercise and perform such other
powers and duties as may be from time to time assigned to him by the Trustees or
prescribed by the Declaration of Trust or these By-Laws.
Section 5. Powers and Duties of the President. Subject to the powers of the
Chairman, if there be such an officer, the President shall be the principal
executive officer of the Trust. He or she may call meetings of the Trustees and
of any Committee thereof when he or she deems it necessary and, in the absence
of the Chairman, shall preside at all meetings of the Shareholders and the
Trustees. Subject to the control of the Trustees, the Chairman and any
Committees of the Trustees, within their respective spheres, as provided by the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he or she may find necessary to
transact the business of the Trust. He or she shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties as
from time to time may be conferred upon or assigned to him or her by the
Trustees.
Section 6. Powers and Duties of the Vice President. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him or her from time to time by the Trustees or the
President.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these By-Laws. He
or she shall render a statement of condition of the finances of the Trust to the
Trustee as often as they shall require the same and he or she shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the Trustees. The
Treasurer shall
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give a bond for the faithful discharge of his or her duties, if required so to
do by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
Section 8. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he or she shall have custody of the seal of the
Trust; he or she shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer Agent. The Secretary
shall attend to the giving and serving of all notices by the Trust in accordance
with the provisions of these By-laws and as required by law; and subject to
these By-Laws, he or she shall in general perform all duties incident to the
office of the Secretary and such other duties as from time to time may be
assigned to him or her by the Trustees.
Section 9. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall give a bond for the faithful discharge
of his or her duties, if required so to do by the Trustees, in such sum and with
such surety or sureties as the Trustees shall require.
Section 10. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him or her by the Trustees.
Section 11. Compensation of Officers and Trustees. Subject to any
applicable provisions of the Declaration of Trust, the compensation of the
officers and Trustees shall be fixed from time to time by the Trustees or, in
the case of officers, by any Committee or officer upon whom such power may be
conferred by the Trustees. No officer shall be prevented from receiving such
compensation as such officer by reason of the fact that he or she is also a
Trustee.
ARTICLE VII
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Fiscal Year
The fiscal year of the Trust shall end on such date as the Trustees shall
from time to time determine.
ARTICLE VIII
Seal
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
Waivers of Notice
Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been telegraphed, cabled or wired for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wire company
with instructions that it be telegraphed, cabled or wired.
ARTICLE X
Custody of Securities
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having not
less than $20,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so
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directed by a vote of holders of the majority of the outstanding Shares entitled
to vote, the Custodian shall deliver and pay over all Trust Property held by it
as specified in such vote.
Section 3. Provisions of Custodian Contract. The following provisions shall
apply to the employment of a Custodian and to any contract entered into with the
Custodian so employed: The Trustees shall cause to be delivered to the Custodian
all securities included in the Trust Property or to which the Trust may become
entitled, and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio securities
to another person, or other disposition thereof, all as the Trustees may
generally or from time to time require or approve or to a successor Custodian;
and the Trustees shall cause all funds included in the Trust Property or to
which it may become entitled to be paid to the Custodian, and shall order the
same disbursed only for investment against delivery of the securities acquired
(including securities acquired under a repurchase agreement), or the return of
cash held as collateral for loans of portfolio securities, or in payment of
expenses, including management compensation, and liabilities of the Trust,
including distributions to Shareholders, or to a successor Custodian.
Notwithstanding anything to the contrary to these By-Laws, upon receipt of
proper instructions, which may be standing instructions, the Custodian may
deliver funds in the following cases: In connection with repurchase agreements,
the Custodian shall transmit prior to receipt on behalf of the Fund of any
securities or other property, funds from the Fund's custodian account to a
special custodian approved by the Trustees of the Fund, which funds shall be
used to pay for securities to be purchased by the Fund subject to the Fund's
obligation to sell and the seller's obligation to repurchase such securities (in
such case, the securities shall be held in the custody of the special
custodian); in connection with the Trust's purchase or sale of financial futures
contracts, the Custodian shall transmit, prior to receipt on behalf of the Fund
of any securities or other property, funds from the Trust's custodian account in
order to furnish and to maintain funds with brokers as margin to guarantee the
performance of the Trust's futures obligations in accordance with the applicable
requirements of commodities exchanges and brokers.
Section 4. Central Certificate System. Subject to applicable rules,
regulations and orders adopted by the Commission, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange
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or a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust.
ARTICLE XI
Indemnification of Trustees, Officers,
Employees and Other Agents
Section 1. Agents, Proceedings, Expenses. For the purpose of this Article,
"agent" means any Person who is or was a Trustee, officer, employee or other
agent of the Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise; "proceeding"
means any threatened, pending or completed claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (including appeals);
and "expenses" includes, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and all other liabilities
whatsoever.
Section 2. Indemnification. The Trust shall indemnify agents of the
Trust (each, a "Covered Person") against judgments, fines, settlements and
expenses to the fullest extent authorized, and in the manner permitted, by
applicable federal and state law.
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Section 3. Insurance, Rights Not Exclusive. The rights of indemnification
herein provided may be insured against by policies maintained by the Trust on
behalf of any agent, shall be severable, shall not be exclusive of or affect any
other rights to which any agent may now or hereafter be entitled and shall inure
to the benefit of the heirs, executors and administrators of any agent. Pursuant
and subject to Sections 2 and 4, the Trust shall indemnify each Covered
Person against, or advance the expenses of any Covered Person for, the amount
of any deductible provided in any liability insurance policy maintained by the
Trust.
Section 4. Advance of Expenses. The Trust shall advance the expenses of
Covered Persons who are parties to any Proceeding to the fullest extent
authorized, and in the manner permitted, by applicable federal and state law.
For purposes of this paragraph, "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative.
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Section 5. Fiduciaries of Employee Benefit Plan. The Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE XII
Amendments
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by (a) a vote of holders of the majority of the
outstanding Shares entitled to vote or (b) by the Trustees, provided, however,
that no By-law may be amended, adopted or repealed by the Trustees if such
amendment, adoption or repeal is required by applicable law, the Declaration of
Trust or these By-Laws, to be submitted to a vote of the Shareholders.
Amended as of March 1, 2000
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
MANAGEMENT AGREEMENT
Agreement made this 27th day of April, 1998, and amended and
restated as of January 1, 2000, 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.
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(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 execution. Therefore, the
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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
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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
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(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
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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,
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(e) the charges and expenses of legal counsel and independent
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,
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(m) litigation and indemnification expenses and other extraordinary
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 up to
$1 billion and .70 of 1% in excess of $1 billion. 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,
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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 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
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the event of termination of this Agreement, the Trust will continue to furnish
to the Manager copies of any of the above mentioned materials which refer in any
way to the Manager. Sales literature may be furnished to the Manager hereunder
by first-class or overnight mail, facsimile transmission equipment or hand
delivery. The 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
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extent that it lawfully can) cease to use such a name or any other name
indicating that it is advised by, managed by or otherwise connected with the
Manager, or any organization which shall have so succeeded to such businesses.
In no event shall the 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/ John R. Strangfeld
--------------------------
John R. Strangfeld
President
PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC
By: /s/ Robert F. Gunia
--------------------------
Robert F. Gunia
Executive Vice President
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PRUDENTIAL 20/20 FOCUS FUND
SUBADVISORY AGREEMENT
Agreement made as of this 27th day of April, 1998 and amended and
restated as of January 1, 2000, 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 and amended and restated as of January 1, 2000 (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
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will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986 and all other applicable federal and
state laws and regulations.
(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
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securities or futures contracts so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Subadviser
in the manner the Subadviser considers to be the most equitable and
consistent with its fiduciary obligations to the 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
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<PAGE>
Agreement.
3. The Manager shall pay the Subadviser at the annual rate of .375 of 1%
of the Fund's average daily net assets for 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.
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<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
THE PRUDENTIAL INVESTMENT CORPORATION
BY: /s/ John R. Strangfeld
------------------------
John R. Strangfeld
President
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<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT
This Amendment to the respective Custodian Contract/Agreement is made as of
February 22, 1999 by and between each of the funds listed on Schedule D
(including any series thereof, each, a "Fund") and State Street Bank and Trust
Company (the "Custodian"). Capitalized terms used in this Amendment without
definition shall have the respective meanings given to such terms in the
Custodian Contract/Agreement referred to below.
WHEREAS, each Fund and the Custodian have entered into a Custodian
Contract/Agreement dated as of the dates set forth on Schedule D (each contract,
as amended, a "Contract"); and
WHEREAS, each Fund and the Custodian desire to amend certain provisions of
the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, each Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of each of
the Funds held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereby agree to amend the
Contract, to add the following new provisions which supersede the provisions in
the existing contracts relating to the custody of assets of the Funds outside
the United States.
3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
3.1. DEFINITIONS.
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure;
systemic custody and securities settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in custody in
that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the U.S. Securities and Exchange Commission (the "SEC")), or a foreign
branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the
requirements of a custodian under Section 17(f) of the 1940 Act, except that the
term does not include Mandatory Securities Depositories.
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"Foreign Assets" means any of the Funds' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Funds'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with systemic
custodial or market practices.
3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
Each Fund, by resolution adopted by its Board of Trustees/Directors (the
"Board"), hereby delegates to the Custodian subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Article 3 with respect to Foreign
Assets of the Fund held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager with respect to the Funds.
3.3. COUNTRIES COVERED.
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
list of countries may be amended from time to time by the Fund with the
agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list
on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody
Manager to maintain the assets of the Funds which list of Eligible Foreign
Custodians may be amended from time to time in the sole discretion of the
Foreign Custody Manager. Mandatory Securities Depositories are listed on
Schedule B to this Contract, which Schedule B may be amended from time to time
by the Foreign Custody Manager upon reasonable notice to the Fund. The Foreign
Custody Manager will provide amended versions of Schedules A and B in accordance
with Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by a Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by that Fund's Board responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or to place or maintain Foreign Assets, in each
country listed on Schedule A in which the Custodian has previously placed or
currently maintains Foreign Assets pursuant to the terms of the
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Contract. Following the receipt of Proper Instructions directing the Foreign
Custody Manager to close the account of a Fund with the Eligible Foreign
Custodian selected by the Foreign Custody Manager in a designated country, the
delegation by that Fund's Board to the Custodian as Foreign Custody Manager for
that country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Fund with respect to
that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.
Subject to the provisions of this Article 3, the Fund's Foreign Custody Manager
may place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation the factors specified in Rule 17f-5(c)(1).
3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
3.4.3. MONITORING.
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules
or established practices and procedures in the case of an Eligible Foreign
Custodian selected by the Foreign
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<PAGE>
Custody Manager which is a foreign securities depository or clearing agency that
is not a Mandatory Securities Depository). The Foreign Custody Manager shall
provide the Board at least annually with information as to the factors used in
such monitoring system. If the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board in
accordance with Section 3.7 hereunder and withdraw the Foreign Assets from such
Eligible Foreign Custodian as soon as reasonably practicable.
3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.
For purposes of this Article 3, the Foreign Custody Manager shall have no
responsibility for Country Risk as is incurred by placing and maintaining the
Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of the Portfolios. The Fund and the Custodian each expressly
acknowledge that the Foreign Custody Manager shall not be delegated any
responsibilities under this Article 3 with respect to Mandatory Securities
Depositories.
3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.
3.7. REPORTING REQUIREMENTS.
The Foreign Custody Manager shall report the placement of Foreign Assets with an
Eligible Foreign Custodian, the withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement of such Foreign Assets with another
Eligible Foreign Custodian by providing to the Board amended Schedules A or B at
the end of the calendar quarter in which an amendment to either Schedule has
occurred. The Foreign Custody Manager shall make written reports notifying the
Board of any other material change in the foreign custody arrangements of the
Funds described in this Article 3 promptly after the occurrence of the material
change.
3.8. REPRESENTATIONS WITH RESPECT TO RULE 17f-5.
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
The Board's delegation to the Custodian as Foreign Custody Manager of the Funds
shall be effective as of the date hereof and shall remain in effect until
terminated at any time, without penalty, by written notice from the terminating
party to the non-terminating party. Termination will become effective sixty (60)
days after receipt by the non-terminating party of such notice.
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The provisions of Section 3.3 hereof shall govern the delegation to and
termination of the Custodian as Foreign Custody Manager of the Funds with
respect to designated countries.
3.10. MOST FAVORED CLIENT.
If at any time prior to termination of this Amendment, the Custodian, as a
matter of standard business practice, accepts delegation as Foreign Custody
Manager for its U.S. mutual fund clients on terms of materially greater benefit
to the Funds than set forth in this Amendment, the Custodian hereby agrees to
negotiate with the Funds in good faith with respect thereto.
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD OUTSIDE
THE UNITED STATES.
4.1 DEFINITIONS.
Capitalized terms in this Article 4 shall have the following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution (including a foreign
branch of the Custodian or another Bank (as defined in Section 2(a)(5) of the
1940 Act)) serving as an Eligible Foreign Custodian.
4.2. HOLDING SECURITIES.
The Custodian shall identify on its books as belonging to the Funds the foreign
securities held by each Foreign Sub-Custodian or Foreign Securities System. The
Custodian may hold foreign securities for all of its customers, including the
Funds, with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, PROVIDED HOWEVER,
that (i) the records of the Custodian with respect to foreign securities of the
Funds which are maintained in such account shall identify those securities as
belonging to the Funds and (ii), to the extent permitted and customary in the
market in which the account is maintained, the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign
Sub-Custodian.
4.3. FOREIGN SECURITIES SYSTEMS.
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.
4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
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4.4.1. DELIVERY OF FOREIGN ASSETS.
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
(i) upon the sale of such foreign securities for the Fund in accordance
with customary market practice in the country where such foreign
securities are held or traded, including, without limitation: (A)
delivery against expectation of receiving later payment; or (B) in
the case of a sale effected through a Foreign Securities System,
in accordance with the rules governing the operation of the
Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other similar
offers for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of
the Custodian (or the name of the respective Foreign Sub-Custodian
or of any nominee of the Custodian or such Foreign Sub-Custodian)
or for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units;
(vi) to brokers, clearing banks or other clearing agents for examination
or trade execution in accordance with reasonable market custom;
PROVIDED that in any such case the Foreign Sub-Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Foreign Sub-Custodian's own
negligence or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
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(ix) for delivery as security in connection with any borrowing by the
Funds requiring a pledge of assets by the Funds;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper purpose, BUT ONLY upon receipt of Proper
Instructions specifying the foreign securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper trust\corporate purpose, and
naming the person or persons to whom delivery of such securities
shall be made.
4.4.2. PAYMENT OF FUND MONIES.
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Fund in the following cases only:
(i) upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, in accordance with
reasonable market settlement practice in the country where such
foreign securities are held or traded, including, without
limitation, (A) delivering money to the seller thereof or to a
dealer therefor (or an agent for such seller or dealer) against
expectation of receiving later delivery of such foreign securities;
or (B) in the case of a purchase effected through a Foreign
Securities System, in accordance with the rules governing the
operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of foreign
securities of the Fund;
(iii) for the payment of any expense or liability of the Fund,
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Fund, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as
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original margin and variation margin;
(vi) for payment of part or all of the dividends received in respect of
securities sold short;
(vii) in connection with the borrowing or lending of foreign securities;
and
(viii) for any other proper purpose, BUT ONLY upon receipt of Proper
Instructions specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper trust\corporate purpose,
and naming the person or persons to whom such payment is to be
made.
4.4.3. MARKET CONDITIONS; MARKET INFORMATION.
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Funds and delivery of
Foreign Assets maintained for the account of the Funds may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs generally accepted by Institutional Clients, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.
For purposes of this Agreement, the term "Institutional Clients" means U.S.
registered investment companies or major U.S. commercial banks, insurance
companies, pension funds or substantially similar institutions which, as a part
of their ordinary business operations, purchase or sell securities and make use
of global custody services.
The Custodian shall provide to the Board information with respect to material
changes in the custody and settlement practices in countries in which the
Custodian employs a Foreign Sub-Custodian. The Custodian shall provide, without
limitation, information relating to Foreign Securities Systems and other
information described in Schedule C. The Custodian may revise Schedule C from
time to time, provided that no such revision shall result in the Board being
provided with substantively less information than had previously been provided
hereunder and provided further that the Custodian shall in any event provide to
the Board at least annually the following information and opinions with respect
to the Board approved countries listed on Schedule A:
(i) legal opinions relating to whether local law restricts with
respect to U.S. registered mutual funds (a) access of a fund's
independent public accountants to books and records of a Foreign
Sub-Custodian or Foreign Securities System, (b) a fund's ability
to recover in the event of bankruptcy or insolvency of a Foreign
Sub-Custodian or Foreign Securities System, (c) a fund's ability to
recover in the event of a loss by a Foreign Sub-Custodian or
Foreign Securities System, and (d)
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the ability of a foreign investor to convert cash and cash
equivalents to U.S. dollars;
(ii) summary of information regarding Foreign Securities Systems; and
(iii) country profile information containing market practice for (a)
delivery versus payment, (b) settlement method, (c) currency
restrictions, (d) buy-in practices, (e) foreign ownership
limits, and (f) unique market arrangements.
4.5. REGISTRATION OF FOREIGN SECURITIES.
The foreign securities maintained in the custody of a Foreign Sub-Custodian
(other than bearer securities) shall be registered in the name of the applicable
series or in the name of the Custodian or in the name of any Foreign
Sub-Custodian or in the name of any nominee of the foregoing, and the Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such foreign securities, except to the extent that the Fund incurs
loss or damage due to failure of such nominee to meet its standard of care set
forth in the Contract. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Fund under the terms of this
Contract unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.
4.6. BANK ACCOUNTS.
The Custodian shall identify on its books as belonging to the Fund cash
(including cash denominated in foreign currencies) deposited with the Custodian.
Where the Custodian is unable to maintain, or market practice does not
facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or
order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the account of
the Portfolio.
4.7. COLLECTION OF INCOME.
The Custodian shall use reasonable commercial efforts to collect all income and
other payments with respect to the Foreign Assets held hereunder to which the
Funds shall be entitled and shall credit such income, as collected, to the
applicable Fund. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.
4.8. SHAREHOLDER RIGHTS.
With respect to the foreign securities held pursuant to this Article 4, the
Custodian will use
9
<PAGE>
reasonable commercial efforts to facilitate the exercise of voting and other
shareholder rights, subject always to the laws, regulations and practical
constraints that may exist in the country where such securities are issued. The
Fund acknowledges that local conditions, including lack of regulation, onerous
procedural obligations, lack of notice and other factors may have the effect of
severely limiting the ability of the Fund to exercise shareholder rights.
4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of the Funds. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. Subject to the standard of care to which the Custodian is held
under this Agreement, the Custodian shall not be liable for any untimely
exercise of any tender, exchange or other right or power in connection with
foreign securities or other property of the Funds at any time held by it unless
(i) the Custodian or the respective Foreign Sub-Custodian is in actual
possession of such foreign securities or property and (ii) the Custodian
receives Proper Instructions with regard to the exercise of any such right or
power, and both (i) and (ii) occur at least three business days prior to the
date on which the Custodian is to take action to exercise such right or power.
4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At each Fund's
election, a Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that a Fund and any applicable series have not been made whole for
any such loss, damage, cost, expense, liability or claim.
4.11. TAX LAW.
Except to the extent that imposition of any tax liability arises from the
Custodian's failure to perform in accordance with the terms of this Section 4.11
or from the failure of any Foreign Sub-Custodian to perform in accordance with
the terms of the applicable subcustody agreement, the Custodian shall have no
responsibility or liability for any obligations now or hereafter imposed on a
Fund, a series thereof or the Custodian as custodian of the Fund by the tax law
of the United States or of any state or political subdivision thereof. It shall
be the responsibility of each Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of
10
<PAGE>
the Fund by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.
4.12. LIABILITY OF CUSTODIAN.
Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to a Fund for any loss, liability, claim or expense resulting
from or caused by anything which is (A) part of Country Risk or (B) part of the
"prevailing country risk" of the Fund, as such term is used in SEC Release Nos.
IC-22658; IS-1080 (May 12, 1997) or as such term or other similar terms are now
or in the future interpreted by the SEC or by the staff of the Division of
Investment Management of the SEC.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities System, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.
11
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY
/s/Marc L. Parsons By: /s/Ronald E. Logue
- ------------------- -------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Executive Vice President
Cash Accumulation Trust
Command Government Fund
Command Money Fund
Command Tax-Free Fund
Global Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Prudential 20/20 Focus Fund
Prudential Balanced Fund
Prudential California Municipal Fund
Prudential Developing Markets Fund
Prudential Distressed Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Diversified Funds
Prudential Index Series Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Europe Growth Fund
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 Institutional Liquidity Portfolio, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
The Prudential Investment Portfolios Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential MoneyMart Assets, Inc.
<PAGE>
Prudential Mortgage Income Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund
Prudential Municipal Series Fund
Prudential National Municipals Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential 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-Free Money Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential Utility Fund, Inc.
Prudential World Fund, Inc.
The Global Total Return Fund, Inc.
The Target Portfolio Trust
The Asia Pacific Fund, Inc.
The High Yield Income Fund, Inc.
WITNESSED BY:
By: /s/S. Jane Rose By: /s/Grace Torres
---------------- -----------------
Grace Torres
Treasurer
First Financial Fund, Inc.
The High Yield Plus Fund, Inc.
WITNESSED BY:
By: /s/Stephanie L. Bourque By: /s/Arthur J. Brown
----------------------- ------------------
Arthur J. Brown
Secretary
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Non-Mandatory Depositories
<S> <C> <C>
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der Oesterreichischen --
Sparkassen AG
Bahrain British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale de Banque --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano S.A. --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. Deposito Central de
Valores S.A.
People's The Hongkong and Shanghai --
Republic Banking Corporation Limited,
of China Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
</TABLE>
14
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Non-Mandatory Depositories
<S> <C> <C>
Costa Rica Banco BCT S.A. --
Croatia Privredna Banka Zagreb d.d --
Cyprus Barclays Bank Plc. --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka, A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A. The Bank of Greece,
System for Monitoring
Transactions in
Securities in Book-Entry
Form
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
Iceland Icebank Ltd.
</TABLE>
15
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Non-Mandatory Depositories
<S> <C> <C>
India Deutsche Bank AG --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Jamaica Trust and Merchant --
Bank Ltd.
Japan The Daiwa Bank, Limited Japan Securities
Depository Center
The Fuji Bank, Limited
Jordan British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic The Hongkong and Shanghai Banking
of Korea Corporation Limited
Latvia JSC Hansabank-Latvija --
Lebanon British Bank of the Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
</TABLE>
16
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Non-Mandatory Depositories
<S> <C> <C>
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa --
The
Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank (Poland) S.A. --
Bank Polska Kasa Opieki S.A.
Portugal Banco Comercial Portugues --
</TABLE>
17
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Non-Mandatory Depositories
<S> <C> <C>
Romania ING Bank N.V. --
Russia Credit Suisse First Boston AO, Moscow --
(as delegate of Credit Suisse
First Boston, Zurich)
Singapore The Development Bank --
of Singapore Limited
Slovak Republic Ceskoslovenska Obchodni Banka, A.S. --
Slovenia Bank Austria d.d. Ljubljana --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Standard Bank Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland UBS AG --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad
& Tobago Republic Bank Limited --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
Ottoman Bank
</TABLE>
18
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Non-Mandatory Depositories
<S> <C> <C>
Ukraine ING Bank, Ukraine --
United Kingdom State Street Bank and Trust Company, --
London Branch
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)/State Street London Limited
Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited
INTERSETTLE (for EASDAQ Securities)
</TABLE>
* The global custody network approved by each fund is set forth below on
Schedules A-1 and A-2.
19
<PAGE>
SCHEDULE A-1
PRUDENTIAL MUTUAL FUNDS
STATE STREET GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
Country Funds
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina Mexico Global Utility Fund, Inc.
Australia Morocco Prudential 20/20 Focus Fund
Austria Netherlands Prudential Balanced Fund
Bangladesh/+/ New Zealand Prudential Equity Fund, Inc.
Belgium Norway Prudential Equity Income Fund
Brazil Pakistan Prudential Developing Markets Fund
Canada Peru Prudential Diversified Bond Fund, Inc.
Chile Philippines Prudential Distressed Securities Fund, Inc.
China Poland Prudential Diversified Funds
Columbia Portugal Prudential Emerging Growth Fund, Inc.
Cyprus Russia Prudential Global Genesis Fund, Inc.
Czech Republic Singapore Prudential Global Limited Maturity Fund, Inc.
Denmark Slovak Republic Prudential Index Series Fund
Ecuador South Africa Prudential Intermediate Global Income Fund, Inc.
Egypt Spain Prudential International Bond Fund, Inc.
Finland Sri Lanka Prudential Mid-Cap Value Fund
France Sweden Prudential Natural Resources Fund, Inc.
Germany Switzerland Prudential Pacific Growth Fund, Inc.
Ghana Taiwan Prudential Real Estate Securities Fund
Greece Thailand Prudential Small-Cap Quantum Fund, Inc.
Hong Kong Turkey Prudential Small Company Value Fund, Inc.
Hungary Transnational Prudential Tax-Managed Equity Fund
India United Kingdom Prudential Utility Fund, Inc.
Indonesia Uruguay Prudential World Fund, Inc.
Ireland Venezuela The Prudential Investment Portfolios Fund, Inc.
Israel The Target Portfolio Trust
Italy The Global Total Return Fund, Inc.
Ivory Coast
Japan
Jordan
Kenya
Korea
Lebanon
Malaysia
- ---------------------------------------------------------------------------------------------------------------
+ Countries marked by a dagger have been approved only for The Target Portfolio Trust.
</TABLE>
<PAGE>
SCHEDULE A-2
PRUDENTIAL MUTUAL FUNDS
STATE STREET GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
Country Funds
- ----------------------------------------------------------------------------------------------
<S> <C>
United Kingdom Cash Accumulation Trust
Command Government Fund
Command Money Fund
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Income Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Argentina Caja de Valores S.A.
Australia Austraclear Limited
Reserve Bank Information and
Transfer System
Austria Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium Caisse Interprofessionnelle de Depot et
de Virement de Titres S.A.
Banque Nationale de Belgique
Brazil Companhia Brasileira de Liquidacao e
Custodia (CBLC)
Bolsa de Valores de Rio de Janeiro
All SSB clients presently use CBLC
Central de Custodia e de Liquidacao
Financeira de Titulos
Canada The Canadian Depository
for Securities Limited
People's Republic Shanghai Securities Central Clearing
of China and Registration Corporation
Shenzhen Securities Central Clearing
Co., Ltd.
Croatia
Czech Republic Stredisko cennych papiru
Czech National Bank
Denmark Vaerdipapircentralen
(the Danish Securities Center)
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Egypt Misr Company for Clearing, Settlement,
and Central Depository
Finland The Finnish Central Securities
Depository
France Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres (SICOVAM)
Germany Deutsche Borse Clearing AG
Greece The Central Securities Depository
(Apothetirion Titlon AE)
Hong Kong The Central Clearing and
Settlement System
Central Money Markets Unit
Hungary The Central Depository and Clearing
House (Budapest) Ltd. (KELER)
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
Indonesia Bank Indonesia
Ireland Central Bank of Ireland
Securities Settlement Office
Israel The Tel Aviv Stock Exchange Clearing
House Ltd.
Bank of Israel
Italy Monte Titoli S.p.A.
Banca d'Italia
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Japan Bank of Japan Net System
Kenya Central Bank of Kenya
Republic of Korea Korea Securities Depository Corporation
Lebanon The Custodian and Clearing Center of
Financial Instruments for Lebanon
and the Middle East (MIDCLEAR) S.A.L.
The Central Bank of Lebanon
Malaysia The Malaysian Central Depository Sdn. Bhd.
Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
System
Mexico S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores)
Morocco Maroclear
The Netherlands Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)
De Nederlandsche Bank N.V.
New Zealand New Zealand Central Securities
Depository Limited
Norway Verdipapirsentralen (the Norwegian
Registry of Securities)
Pakistan Central Depository Company of Pakistan
Limited
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Peru Caja de Valores y Liquidaciones S.A.
(CAVALI)
Philippines The Philippines Central Depository, Inc.
The Registry of Scripless Securities
(ROSS) of the Bureau of the Treasury
Poland The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)
Central Treasury Bills Registrar
Portugal Central de Valores Mobiliarios (Central)
Romania National Securities Clearing, Settlement and
Depository Co.
Bucharest Stock Exchange Registry Division
Singapore The Central Depository (Pte)
Limited
Monetary Authority of Singapore
Slovak Republic Stredisko Cennych Papierov
National Bank of Slovakia
South Africa The Central Depository Limited
Spain Servicio de Compensacion y
Liquidacion de Valores, S.A.
Banco de Espana,
Central de Anotaciones en Cuenta
Sri Lanka Central Depository System
(Pvt) Limited
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Sweden Vardepapperscentralen AB
(the Swedish Central Securities Depository)
Switzerland Schweizerische Effekten - Giro AG
Taiwan - R.O.C. The Taiwan Securities Central
Depository Co., Ltd.
Thailand Thailand Securities Depository
Company Limited
Turkey Takas ve Saklama Bankasi A.S.
(TAKASBANK)
Central Bank of Turkey
United Kingdom The Bank of England,
The Central Gilts Office and
The Central Moneymarkets Office
Uruguay Central Bank of Uruguay
Venezuela Central Bank of Venezuela
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
SCHEDULE C
MARKET INFORMATION
<TABLE>
<CAPTION>
PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION
<S> <C>
(Frequency)
THE GUIDE TO CUSTODY IN WORLD MARKETS An overview of safekeeping and
(annually) settlement practices and
procedures in each market in which
State Street Bank and Trust Company
offers custodial services.
GLOBAL CUSTODY NETWORK REVIEW Information relating to the operating
(annually) history and structure of
depositories and subcustodians
located in the markets in which
State Street Bank and Trust Company
offers custodial services,
including transnational
depositories.
GLOBAL LEGAL SURVEY With respect to each market in
(annually) which State Street Bank and Trust
Company offers custodial services,
opinions relating to whether local
law restricts (i) access of a
fund's independent public
accountants to books and records of
a Foreign Sub-Custodian or Foreign
Securities System, (ii) the Fund's
ability to recover in the event of
bankruptcy or insolvency of a
Foreign Sub-Custodian or Foreign
Securities System, (iii) the Fund's
ability to recover in the event of
a loss by a Foreign Sub-Custodian
or Foreign Securities System, and
(iv) the ability of a foreign
investor to convert cash and cash
equivalents to U.S. dollars.
SUBCUSTODIAN AGREEMENTS Copies of the subcustodian
(annually) contracts State Street Bank and
Trust Company has entered into with
each subcustodian in the markets in
which State Street Bank and Trust
Company offers subcustody services
to its US mutual fund clients.
Network Bulletins (weekly): Developments of interest to
investors in the markets in which
State Street Bank and Trust Company
offers custodial services.
Foreign Custody Advisories With respect to markets in which
(as necessary): State Street Bank and Trust Company
offers custodial services which
exhibit special custody risks,
developments which may impact State
Street's ability to deliver
expected levels of service.
</TABLE>
<PAGE>
SCHEDULE D
LIST OF FUNDS, CONTRACTS AND AGREEMENTS
<TABLE>
<CAPTION>
Fund Name Execution Date
- --------- --------------
<S> <C>
Cash Accumulation Trust December 12, 1997
Command Government Fund July 1, 1990
Command Money Fund July 1, 1990
Command Tax-Free Fund July 1, 1990
The Global Total Return Fund, Inc. September 5, 1990
(formerly The Global Yield Fund, Inc.)
Prudential 20/20 Focus Fund April 14, 1998
Prudential California Municipal Fund August 1, 1990
Prudential Developing Markets Fund June 1, 1998
Prudential Distressed Securities Fund, Inc. February 8, 1996
Prudential Diversified Bond Fund, Inc. January 3, 1995
Prudential Diversified Funds September 2, 1998
Prudential Emerging Growth Fund, Inc. October 21, 1996
Prudential Equity Fund, Inc. August 1, 1990
Prudential Global Limited Maturity Fund, Inc. October 25, 1990
(formerly Prudential Short-Term Global
Income Fund, Inc.)
Prudential Government Income Fund, Inc. July 31, 1990
(formerly Prudential Government Plus Fund)
Prudential Government Securities Trust July 26, 1990
Prudential High Yield Fund, Inc. July 26, 1990
Prudential High Yield Total Return Fund, Inc. May 30, 1997
Prudential International Bond Fund, Inc. January 16, 1996
(formerly The Global Government Plus Fund, Inc.)
The Prudential Investment Portfolios Fund, Inc.
(formerly Prudential Jennison Series Fund, Inc.) October 27, 1995
Prudential Mid-Cap Value Fund April 14, 1998
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Prudential MoneyMart Assets, Inc. July 25, 1990
Prudential Mortgage Income Fund, Inc. August 1, 1990
(formerly Prudential GNMA Fund, Inc.)
Prudential Multi-Sector Fund, Inc. June 1, 1990
Prudential Municipal Series Fund August 1, 1990
Prudential National Municipals Fund, Inc. July 26, 1990
Prudential Pacific Growth Fund, Inc. July 16, 1992
Prudential Real Estate Securities Fund February 18, 1998
Prudential Small Cap Quantum Fund, Inc. August 1, 1997
Prudential Small Company Value Fund, Inc. July 26, 1990
(formerly Prudential Growth Opportunity Fund, Inc.)
Prudential Special Money Market Fund, Inc. January 12, 1990
Prudential Structured Maturity Fund, Inc. July 25, 1989
Prudential Tax-Free Money Fund, Inc. July 26, 1990
Prudential Utility Fund, Inc. June 6, 1990
Prudential World Fund, Inc. June 7, 1990
(formerly Prudential Global Fund, Inc.)
The Target Portfolio Trust November 9, 1992
Global Utility Fund, Inc. December 21, 1989
Nicholas-Applegate Fund, Inc. April 10, 1987
Prudential Balanced Fund September 4, 1987
Prudential Equity Income Fund January 6, 1987
Prudential Global Genesis Fund, Inc. October 21, 1987
Prudential Institutional Liquidity Portfolio, Inc. November 20, 1987
Prudential Intermediate Global Income Fund, Inc. May 19, 1988
Prudential Municipal Bond Fund August 25, 1987
Prudential Natural Resources Fund, Inc. September 18, 1987
Prudential Tax-Managed Equity Fund December 8, 1998
The Asia Pacific Fund April 24, 1987
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Duff & Phelps Utilities Tax-Free Income Fund, Inc. November 21, 1991
First Financial Fund, Inc. May 1, 1986
The High Yield Income Fund, Inc. November 6, 1987
The High Yield Plus Fund, Inc. March 15, 1988
</TABLE>
<PAGE>
AMENDMENT TO TRANSFER AGENCY AND SERVICE AGREEMENT
THIS AMENDMENT to the Transfer Agency and Service Agreement by and between
Prudential 20/20 Focus Fund (the "Fund") and Prudential Mutual Fund Services LLC
(successor to Prudential Mutual Fund Services, Inc.)("PMFS") is entered into as
of August 24, 1999.
WHEREAS, the Fund and PMFS have entered into a Transfer Agency and Service
Agreement (the "Agreement") pursuant to which PMFS serves as transfer agent,
dividend disbursing agent and shareholder servicing agent for the Fund; and
WHEREAS, the Fund and PMFS desire to amend the Agreement to confirm the
Fund's agreement to pay transfer agency account fees and expenses for beneficial
owners holding shares through omnibus accounts maintained by The Prudential
Insurance Company of America, its subsidiaries or affiliates.
NOW, THEREFORE, for and in consideration of the continuation of the
Agreement, and other good and valuable consideration, Article 8 of the Agreement
is amended by adding the following section to the Agreement:
8.04 PMFS may enter into agreements with Prudential or any subsidiary
or affiliate of Prudential whereby PMFS will maintain an omnibus account
and the Fund will reimburse PMFS for amounts paid by PMFS to Prudential, or
such subsidiary or affiliate, in an amount not in excess of the annual
maintenance fee for each beneficial shareholder account and transactional
fees and expenses with respect to such beneficial shareholder account as if
each beneficial shareholder account were maintained by PMFS on the Fund's
records, subject to the fee schedule attached hereto as Schedule A.
Prudential, its subsidiary or affiliate, as the case may be, shall maintain
records relating to each beneficial shareholder account that underlies the
omnibus account maintained by PMFS.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
PRUDENTIAL 20/20 FOCUS FUND ATTEST:
By: /s/ R. F. Gunia By: /s/ Marguerite E.H. Morrison
---------------- ----------------------------
Robert F. Gunia Marguerite E.H. Morrison
Vice President Secretary
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTEST:
By: /s/ Brian W. Henderson By: /s/ William V. Healey
---------------------- ---------------------
Brian W. Henderson William V. Healey
President Secretary
<PAGE>
MORRIS, NICHOLS, ARSHT & TUNNELL
1201 N. MARKET STREET
P.O. BOX 1347
WILMINGTON, DE 19899-1347
(302) 658-9200
TELECOPY NO. (302) 658-3989
March 30, 2000
Prudential 20/20 Focus Fund
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
Re: Prudential 20/20 Focus Fund
---------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to Prudential 20/20
Focus Fund (formerly named Prudential 20/20 Fund), a Delaware business trust
(the "Trust"), in connection with the formation of the Trust and certain matters
relating to the proposed issuance of Shares of the Trust. Capitalized terms used
herein and not otherwise herein defined are used as defined in the Agreement and
Declaration of Trust of the Trust dated December 17, 1997, as amended by the
First Amendment to Agreement and Declaration of Trust dated February 19, 1998
(as now or heretofore in effect from time to time, the "Governing Instrument").
In rendering this opinion, we have examined copies of the
following documents, each in the form provided to us: the Certificate of Trust
of the Trust as filed in the Office of the Secretary of State of the State of
Delaware (the "State Office") on December 18, 1997 (the "Certificate"); the
Governing Instrument; the By-laws of the Trust, as amended on March 1, 2000; the
Minutes of Organizational Meeting of the Trustees dated February 11, 1998 (the
"Organizational Meeting Minutes"); a Unanimous Written Consent of the Board of
Trustees of the Trust dated December 30, 1997 (the "Consent"); the Notification
of Registration Filed Pursuant to Section 8(a) of the Investment Company Act of
1940 on Form N-8A of the Trust filed with the Securities and Exchange Commission
on December 30, 1997; Post-Effective Amendment No. 3 to
<PAGE>
Prudential 20/20 Fund
March 30, 2000
Page 2
the Registration Statement under the Securities Act of 1933 on Form N-1A of the
Trust to be filed with the Securities and Exchange Commission on or about the
date hereof (the "Registration Statement" and, together with the Governing
Instrument, the By-laws of the Trust, the Organizational Meeting Minutes and the
Consent, the "Operative Documents"); and a certification of good standing of the
Trust obtained as of a recent date from the State Office. In such examinations,
we have assumed the genuineness of all signatures, the conformity to original
documents of all documents submitted to us as copies or drafts of documents to
be executed, and the legal capacity of natural persons to complete the execution
of documents. We have further assumed for the purpose of this opinion: (i) the
due adoption, authorization, execution and delivery by, or on behalf of, each of
the parties thereto of the above-referenced resolutions, instruments,
certificates and other documents, and of all documents contemplated by the
Operative Documents to be executed by investors acquiring Shares; (ii) the
payment of consideration for Shares, and the application of such consideration,
as provided in the Operative Documents, and compliance with the other terms,
conditions and restrictions set forth in the Operative Documents in connection
with the issuance of Shares (including, without limitation, the taking of all
appropriate action by the Trustees to designate Series of Shares and the rights
and preferences attributable thereto as contemplated by the Governing
Instrument); (iii) that appropriate notation of the names and addresses of, the
number of Shares held by, and the consideration paid by, Shareholders will be
maintained in the appropriate registers and other books and records of the Trust
in connection with the issuance, redemption or transfer of Shares; (iv) that no
event has occurred subsequent to the filing of the Certificate that would cause
a termination or reorganization of the Trust under Section 2 or Section 3 of
Article VIII of the Governing Instrument; (v) that the activities of the Trust
have been and will be conducted in accordance with the terms of the Governing
Instrument and the Delaware Business Trust Act, 12 DEL. C. Sections 3801 ET SEQ.
(the "Delaware Act"); and (vi) that each of the documents examined by us is in
full force and effect, expresses the entire understanding of the parties thereto
with respect to the subject matter thereof and has not been amended,
supplemented or otherwise modified, except as herein referenced. No opinion is
expressed herein with respect to the requirements of, or compliance with,
federal or state securities or blue sky laws. Further, we have not participated
in the preparation of the Registration Statement or any other offering
documentation relating to the Trust or the Shares and we assume no
responsibility for their contents. As to any facts material to our opinion,
other than those assumed, we have relied without independent investigation on
the above-referenced documents and on the accuracy, as of the date hereof, of
the matters therein contained.
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, it is our opinion that:
1. The Trust is a duly formed and validly existing business
trust in good standing under the laws of the State of Delaware.
<PAGE>
Prudential 20/20 Fund
March 30, 2000
Page 3
2. The issuance of the Shares has been duly authorized on
behalf of the Trust and, when issued to Shareholders in accordance with the
terms, conditions, requirements and procedures and for the consideration set
forth in the Operative Documents, will constitute legally issued, fully paid and
non-assessable Shares of beneficial interest in the Trust
3. Under the Delaware Act and the terms of the Governing
Instrument, each Shareholder of the Trust, in such capacity, will be entitled to
the same limitation of personal liability as that extended to stockholders of
private corporations for profit organized under the general corporation law of
the State of Delaware; provided, however, that we express no opinion with
respect to the liability of any Shareholder who is, was or may become a named
Trustee of the Trust. Neither the existence nor exercise of the voting rights
granted to Shareholders under the Governing Instrument will, of itself, cause a
Shareholder to be deemed a trustee of the Trust under the Delaware Act.
Notwithstanding the foregoing or the opinion expressed in paragraph 2 above, we
note that, pursuant to Section 5 of Article IV of the Governing Instrument, the
Trustees have the power to cause Shareholders, or Shareholders of a particular
Series, to pay certain custodian, transfer, servicing or similar agent charges
by setting off the same against declared but unpaid dividends or by reducing
Share ownership (or by both means).
We hereby consent to the filing of a copy of this opinion with
the Securities and Exchange Commission with the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. This opinion speaks only as of the date hereof and is
based on our understandings and assumptions as to present facts and our review
of the above referenced documents and the application of Delaware law as the
same exist on the date hereof, and we undertake no obligation to update or
supplement this opinion after the date hereof for the benefit of any person or
entity with respect to any facts or circumstances that may hereafter come to our
attention or any changes in facts or law that may hereafter occur or take
effect. Except as provided in this paragraph, the opinion set forth above is
expressed solely for the benefit of the addressee hereof in connection with the
matters contemplated hereby and may not be relied upon for any other purpose or
by any other person or entity without our prior written consent.
Sincerely,
/s/ MORRIS, NICHOLS, ARSHT & TUNNELL
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated March 21, 2000, relating to the financial statements and financial
highlights of Prudential 20/20 Focus Fund, which appears in such Registration
Statement. We also consent to the references to us under the headings
"Investment Advisory and Other Services" and "Financial Highlights" in such
Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
March 27, 2000
<PAGE>
PRUDENTIAL 20/20 FOCUS FUND
(THE FUND)
CODE OF ETHICS ADOPTED PURSUANT TO RULE 17j-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
(THE CODE)
1. PURPOSES
The Code has been adopted by the Board of Directors/Trustees of the
Fund, in accordance with Rule 17j-1(c) under the Investment Company Act of 1940
(the Act) and in accordance with the following general principles:
(1) THE DUTY AT ALL TIMES TO PLACE THE INTERESTS OF
SHAREHOLDERS FIRST.
Investment company personnel should scrupulously
avoid serving their own personal interests ahead of
shareholders' interests in any decision relating to their
personal investments.
(2) THE REQUIREMENT THAT ALL PERSONAL SECURITIES TRANSACTIONS
BE CONDUCTED CONSISTENT WITH THE CODE AND IN SUCH A MANNER AS
TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY
ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND RESPONSIBILITY.
Investment company personnel must not only seek to
achieve technical compliance with the Code but should strive
to abide by its spirit and the principles articulated herein.
(3) THE FUNDAMENTAL STANDARD THAT INVESTMENT COMPANY PERSONNEL
SHOULD NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS.
Investment company personnel must avoid any situation
that might compromise, or call into question, their exercise
of fully independent judgment in the interest of shareholders,
including, but not limited to the receipt of unusual
investment opportunities, perquisites, or gifts of more than a
DE MINIMIS value from persons doing or seeking business with
the Fund.
<PAGE>
Rule 17j-1 under the Act generally proscribes fraudulent or
manipulative practices with respect to a purchase or sale of a security held or
to be acquired (as such term is defined in Section 2.) by an investment company,
if effected by an associated person of such company.
The purpose of the Code is to establish procedures consistent with the
Act and Rule 17j-1 to give effect to the following general prohibitions as set
forth in Rule 17j-1(b) as follows:
(a) It shall be unlawful for any affiliated person of or
Principal Underwriter for a registered investment company, or any
affiliated person of an investment adviser of or principal underwriter
for a registered investment company in connection with the purchase or
sale, directly or indirectly, by such person of a security held or to
be acquired, by such registered investment company:
(1) To employ any device, scheme or artifice to defraud
such registered investment company;
(2) To make to such registered investment company any
untrue statement of a material fact or omit to state to such
registered investment company a material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading;
(3) To engage in any act, practice, or course of
business which operates or would operate as a fraud or deceit
upon any such registered investment company; or
(4) To engage in any manipulative practice with respect
to such registered investment company.
2. DEFINITIONS
(a) "Access Person" means any director/trustee, officer,
general partner or Advisory Person (including any Investment Personnel,
as that term is defined herein) of the Fund, the Manager, the
Adviser/Subadviser, or the Principal Underwriter.
2
<PAGE>
(b) "Adviser/Subadviser" means the Adviser or Subadviser of
the Fund or both as the context may require.
(c) "Advisory Person" means (i) any employee of the Fund,
Manager or Adviser/Subadviser (or of any company in a control
relationship to the Fund, Manager or Adviser/Subadviser) who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of a security by the Fund, or whose functions relate to the making of
any recommendations with respect to such purchases or sales; and (ii)
any natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of a security.
(d) "Beneficial Ownership" will be interpreted in the same
manner as it would be under Securities Exchange Act Rule 16a-1(a)(2) in
determining which security holdings of a person are subject to the
reporting and short-swing profit provisions of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect
beneficial ownership will apply to all securities which an Access
Person has or acquires (EXHIBIT A).
(e) "Complex" means the group of registered investment
companies for which Prudential Investments Fund Management LLC serves
as Manager; provided, however, that with respect to Access Persons of
the Subadviser (including any unit or subdivision thereof), "Complex"
means the group of registered investment companies in the Complex
advised by the Subadviser or unit or subdivision thereof.
(f) "Compliance Officer" means the person designated by the
Manager, the Adviser/Subadviser, or Principal Underwriter (including
his or her designee) as having responsibility for compliance with the
requirements of the Code.
(g) "Control" will have the same meaning as that set forth in
Section 2(a)(9) of the Act.
(h) "Disinterested Director/Trustee" means a Director/ Trustee
of the Fund who is not an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Act.
An interested Director/Trustee who would not otherwise be
deemed to be an Access Person, shall be treated as a Disinterested
Director/Trustee for purposes of compliance with the provisions of the
3
<PAGE>
Code.
(i) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act of
1934.
(j) "Investment Personnel" means: (a) Portfolio Managers and
other Advisory Persons who provide investment information and/or advice
to the Portfolio Manager(s) and/or help execute the Portfolio
Manager's(s') investment decisions, including securities analysts and
traders ; and (b) any natural person in a control relationship to the
Fund who obtains information concerning recommendations made to the
Fund with regard to the purchase or sale of a security.
(k) "Manager" means Prudential Investments Fund Management,
LLC.
(l) "Portfolio Manager" means any Advisory Person who has the
direct responsibility and authority to make investment decisions for
the Fund.
(m) "Private placement" means a limited offering that is
exempt from registration under the Securities Act of 1933 pursuant to
section 4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule
506 under such Securities Act.
(n) "Security" will have the meaning set forth in Section
2(a)(36) of the Act, except that it will not include shares of
registered open-end investment companies, direct obligations of the
Government of the United States, , short-term debt securities which are
"government securities" within the meaning of Section 2(a)(16) of the
Act, bankers' acceptances, bank certificates of deposit, commercial
paper and such other money market instruments as are designated by the
Compliance Officer. For purposes of the Code, an "equivalent Security"
is one that has a substantial economic relationship to another
Security. This would include, among other things, (1) a Security that
is exchangeable for or convertible into another Security, (2) with
respect to an equity Security, a Security having the same issuer
(including a private issue by the same issuer) and any derivative,
option or warrant relating to that Security and (3) with respect to a
fixed-income Security, a Security having the same issuer, maturity,
coupon and rating.
(o) "Security held or to be acquired" means any Security or
any equivalent Security which, within the most recent 15 days: (1) is
or has
4
<PAGE>
been held by the Fund; or (2) is being considered by the Fund or its
investment adviser for purchase by the Fund.
3. APPLICABILITY
The Code applies to all Access Persons and the Compliance Officer shall
provide each Access Person with a copy of the Code. The prohibitions described
below will only apply to a transaction in a Security in which the designated
Access Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership. The Compliance Officer will maintain a list of
all Access Persons who are currently, and within the past five years, subject to
the Code.
4. PROHIBITED PURCHASES AND SALES
A. INITIAL PUBLIC OFFERINGS
No Investment Personnel may acquire any Securities in an initial public
offering. For purposes of this restriction, "Initial Public Offerings" shall not
include offerings of government and municipal securities.
B. PRIVATE PLACEMENTS
No Investment Personnel may acquire any Securities in a private
placement without prior approval.
(i) Prior approval must be obtained in accordance with the
preclearance procedure described in Section 6 below. Such approval will
take into account, among other factors, whether the investment
opportunity should be reserved for the Fund and its shareholders and
whether the opportunity is being offered to the Investment Personnel by
virtue of his or her position with the Fund. The Adviser/Subadviser
shall
5
<PAGE>
maintain a record of such prior approval and reason for same, for at
least 5 years after the end of the fiscal year in which the approval is
granted.
(ii) Investment Personnel who have been authorized to acquire
Securities in a private placement must disclose that investment to the
chief investment officer (including his or her designee) of the
Adviser/Subadviser (or of any unit or subdivision thereof) or the
Compliance Officer when they play a part in any subsequent
consideration of an investment by the Fund in the issuer. In such
circumstances, the Fund's decision to purchase Securities of the issuer
will be subject to an independent review by appropriate personnel with
no personal interest in the issuer.
C. BLACKOUT PERIODS
(i) Except as provided in Section 5 below, Access Persons are
prohibited from executing a Securities transaction on a day during
which any investment company in the Complex has a pending "buy" or
"sell" order in the same or an equivalent Security and until such time
as that order is executed or withdrawn; provided, however, that this
prohibition shall not apply to Disinterested Directors/Trustees except
if they have actual knowledge of trading by any fund in the Complex
and, in any event, only with respect to those funds on whose boards
they sit.
This prohibition shall also not apply to Access Persons of the
Subadviser who do not, in the ordinary course of fulfilling his or her
official duties, have
6
<PAGE>
access to information regarding the purchase and sale of Securities for
the Fund and are not engaged in the day-to-day operations of the Fund;
provided that Securities investments effected by such Access Persons
during the proscribed period are not effected with knowledge of the
purchase or sale of the same or equivalent Securities by any fund in
the Complex.
A "pending 'buy' or 'sell' order" exists when a decision to
purchase or sell a Security has been made and communicated.
(ii) Portfolio Managers are prohibited from buying or selling
a Security within seven calendar days before or after the Fund trades
in the same or an equivalent Security. Nevertheless, a personal trade
by any Investment Personnel shall not prevent a Fund in the same
Complex from trading in the same or an equivalent security. However,
such a transaction shall be subject to independent review by the
Compliance Officer.
(iii) If trades are effected during the periods proscribed in
(i) or (ii) above, except as provided in (iv) below with respect to (i)
above, any profits realized on such trades will be promptly required to
be disgorged to the Fund.
(iv) A transaction by Access Persons (other than Investment
Personnel) inadvertently effected during the period proscribed in (i)
above will not be considered a violation of the Code and disgorgement
will not be required so long as the transaction was effected in
accordance with the preclearance procedures described in Section 6
below and without prior knowledge of trading by any fund
7
<PAGE>
in the Complex in the same or an equivalent Security.
D. SHORT-TERM TRADING PROFITS
Except as provided in Section 5 below, Investment Personnel are
prohibited from profiting from a purchase and sale, or sale and purchase, of the
same or an equivalent Security within any 60 calendar day period. If trades are
effected during the proscribed period, any profits realized on such trades will
be immediately required to be disgorged to the Fund.
E. SHORT SALES
No Access Person may sell any security short which is owned by any Fund
in the Complex. Access Persons may, however make short sales when he/she owns an
equivalent amount of the same security.
F. OPTIONS
No Access Person may write a naked call option or buy a naked put
option on a security owned by any Fund in the Complex. Access Persons may
purchase options on securities not held by any Fund in the Complex, or purchase
call options or write put options on securities owned by any Fund in the
Complex, subject to preclearance and the same restrictions applicable to other
Securities. Access Persons may write covered call options or buy covered put
options on a Security owned by any Fund in the Complex at the discretion of the
Compliance Officer.
G. INVESTMENT CLUBS
No Access Person may participate in an investment club.
8
<PAGE>
5. EXEMPTED TRANSACTIONS
Subject to preclearance in accordance with Section 6 below with respect
to subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C)
and 4(D) will not apply to the following:
(a) Purchases or sales of Securities effected in any account
over which the Access Person has no direct or indirect influence or
control or in any account of the Access Person which is managed on a
discretionary basis by a person other than such Access Person and with
respect to which such Access Person does not in fact influence or
control such transactions.
(b) Purchases or sales of Securities (or their equivalents)
which are not eligible for purchase or sale by any fund in the Complex.
(c) Purchases or sales of Securities which are non-volitional
on the part of either the Access Person or any fund in the Complex.
(d) Purchases of Securities which are part of an automatic
dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by
an issuer PRO RATA to all holders of a class of its Securities, to the
extent such rights were acquired from such issuer, and sales of such
rights so acquired.
(f) Any equity Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 500
shares or less in the aggregate, if (i) the Access Person has no prior
knowledge of activity in such security by any fund in the Complex and
(ii) the issuer is listed on The New York Stock Exchange or has a
market capitalization (outstanding shares multiplied by the current
price per share) greater than $1 billion (or a corresponding market
capitalization in foreign markets).
(g) Any fixed-income Securities transaction, or series of
related transactions effected over a 30 calendar day period, involving
100 units ($100,000 principal amount) or less in the aggregate, if the
Access Person has no prior knowledge of transactions in such Securities
by any fund in the Complex.
(h) Any transaction in index options effected on a broad-based
9
<PAGE>
index (See Exhibit B.)(1)
(i) Purchases or sales of Securities which receive the prior
approval of the Compliance Officer (such person having no personal
interest in such purchases or sales), based on a determination that no
abuse is involved and that such purchases and sales are not likely to
have any economic impact on any fund in the Complex or on its ability
to purchase or sell Securities of the same class or other Securities of
the same issuer.
(j) Purchases or sales of Unit Investment Trusts.
6. PRECLEARANCE
Access Persons (other than Disinterested Directors/Trustees) must
preclear all personal Securities investments with the exception of those
identified in subparts (a), (c), (d), (h) and (j) of Section 5 above.
All requests for preclearance must be submitted to the Compliance
Officer for approval. All approved orders must be executed no later than 5:00
p.m. local time on the business day following the date preclearance is granted.
If any order is not timely executed, a request for preclearance must be
resubmitted.
7. REPORTING
(a) Disinterested Directors/Trustees shall report to the Secretary of
the Fund or the Compliance Officer the information described in Section 7(b)
hereof with respect to transactions in any Security in which such Disinterested
Director/Trustee has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in the Security ONLY if such Disinterested
Director/Trustee, at the time of that transaction knew or, in the ordinary
course of fulfilling his or her official duties as a Director/Trustee of the
- -----------------
(1) Exhibit B will be amended by the Compliance Officer as necessary.
10
<PAGE>
Fund, should have known that, during the 15-day period immediately preceding or
subsequent to the date of the transaction in a Security by such
Director/Trustee, such Security is or was purchased or sold by the Fund or was
being considered for purchase or sale by the Fund, the Manager or
Adviser/Subadviser; provided, however, that a Disinterested Director/Trustee is
not required to make a report with respect to transactions effected in any
account over which such Director/Trustee does not have any direct or indirect
influence or control or in any account of the Disinterested Director/Trustee
which is managed on a discretionary basis by a person other than such
Director/Trustee and with respect to which such Director/Trustee does not in
fact influence or control such transactions. The Secretary of the Fund or the
Compliance Officer shall maintain such reports and such other records to the
extent required by Rule 17j-1 under the Act.
(b) Every report required by Section 7(a) hereof shall be made not
later than ten days after the end of the calendar quarter in which the
transaction to which the report relates was effected, and shall contain the
following information:
(i) The date of the transaction, the title and the number of
shares, and the principal amount of each Security involved;
(ii) The nature of the transaction (I.E., purchase, sale or any
other type of acquisition or disposition);
(iii) The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(v) The date that the report is submitted.
11
<PAGE>
(c) Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the Security to which the report
relates.
8. RECORDS OF SECURITIES TRANSACTIONS AND POST-TRADE REVIEW
Access Persons (other than Disinterested Directors/Trustees) are
required to direct their brokers to supply, on a timely basis, duplicate copies
of confirmations of all personal Securities transactions and copies of periodic
statements for all Securities accounts in which such Access Persons have a
Beneficial Ownership interest to the Compliance Officer. Such instructions must
be made upon becoming an Access Person and promptly as new accounts are
established, but no later than ten days after the end of a calendar quarter,
with respect to any account established by the Access Person in which any
securities were held during the quarter for the direct or indirect beneficial
interest of the Access Person. Notification must be made in writing and a copy
of the notification must be submitted to Compliance. This notification will
include the broker, dealer or bank with which the account was established and
the date the account was established.
Compliance with this Code requirement will be deemed to satisfy the
reporting requirements imposed on Access Persons under Rule 17j-1(d), provided,
however, that such confirmations and statements contain all the information
required by Section 7. b. hereof and are furnished within the time period
required by such section.
The Compliance Officer will periodically review the personal investment
activity and holdings reports of all Access Persons (including Disinterested
Directors/Trustees
12
<PAGE>
with respect to Securities transactions reported pursuant to Section 7 above).
9. DISCLOSURE OF PERSONAL HOLDINGS
Within ten days after an individual first becomes an Access Person and
thereafter on an annual basis, each Access Person (other than Disinterested
Directors/Trustees) must disclose all personal Securities holdings. Such
disclosure must be made in writing and be as of the date the individual first
became an Access Person with respect to the initial report and by January 30 of
each year, including holdings information as of December 31, with respect to the
annual report. All such reports shall include the following: title, number of
shares and principal amount of each security held, name of broker, dealer or
bank with whom these securities are held and the date of submission by the
Access Person.
10. GIFTS
Access Persons are prohibited from receiving any gift or other thing of
more than $100 in value from any person or entity that does business with or on
behalf of the Fund. Occasional business meals or entertainment (theatrical or
sporting events, etc.) are permitted so long as they are not excessive in number
or cost.
11. SERVICE AS A DIRECTOR
Investment Personnel are prohibited from serving on the boards of
directors of publicly traded companies, absent prior authorization based upon a
determination that the board service would be consistent with the interests of
the Fund and its shareholders. In the limited instances that such board service
is authorized, Investment Personnel will be isolated from those making
investment decisions affecting
13
<PAGE>
transactions in Securities issued by any publicly traded company on whose board
such Investment Personnel serves as a director through the use of "Chinese Wall"
or other procedures designed to address the potential conflicts of interest.
12. CERTIFICATION OF COMPLIANCE WITH THE CODE
Access Persons are required to certify annually as follows:
(i) that they have read and understood the Code;
(ii) that they recognize that they are subject to the Code;
(iii) that they have complied with the requirements of the Code; and
(iv) that they have disclosed or reported all personal Securities
transactions required to be disclosed or reported pursuant to
the requirements of the Code.
13. CODE VIOLATIONS
All violations of the Code will be reported to the Board of
Directors/Trustees of the Fund on a quarterly basis. The Board of
Directors/Trustees may take such action as it deems appropriate.
14. REVIEW BY THE BOARD OF DIRECTORS/TRUSTEES
The Board of Directors/Trustees will be provided with an annual report
which at a minimum:
(i) certifies to the Board that the Fund, Manager, Investment
Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably
necessary to prevent its Access persons from violating its Code.
(ii) summarizes existing procedures concerning personal investing and
any
14
<PAGE>
changes in the procedures made during the preceding year;
(iii) identifies material Code or procedural violations and sanctions
imposed in response to those material violations; and
(iv) identifies any recommended changes in existing restrictions or
procedures based upon the Fund's experience under the Code, evolving industry
practices, or developments in applicable laws and regulations.
The Board will review such report and determine if any further action
is required.
15
<PAGE>
EXPLANATORY NOTES TO CODE
1. No comparable Code requirements have been imposed upon Prudential
Mutual Fund Services LLC, the Fund's transfer agent, or those of its directors
or officers who are not Directors/Trustees or Officers of the Fund since they
are deemed not to constitute Access Persons or Advisory Persons as defined in
paragraphs (e)(1) and (2) of Rule 17j-1.
Dated: February 29, 2000
16
<PAGE>
EXHIBIT A
DEFINITION OF BENEFICIAL OWNERSHIP
The term "beneficial ownership" of securities would include not only
ownership of securities held by an access person for his or her own
benefit,whether in bearer form or registered in his or her own name or
otherwise, but also ownership of securities held for his or her benefit by other
(regardless of whether or how they are registered) such as custodians, brokers,
executors, administrators, or trustees (including trusts in which he or she has
only a remainder interest), and securities held for his or her account by
pledges, securities owned by a partnership in which he or she should regard as a
personal holding corporation. Correspondingly, this term would exclude
securities held by an access person for the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an access person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an access person where such person enjoys "benefits
substantially equivalent to ownership". The SEC has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances such relationship ordinarily
results in such person obtaining benefits substantially equivalent to ownership,
e.g., application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet from other
sources, or the ability to exercise a controlling influence over the purchase,
sale or voting of such securities.
An access person also may be regarded as the beneficial owner of
securities held in the name of another person, if by reason of any contact,
understanding, relationship, agreement or other arrangement, he obtains
therefrom benefits substantially equivalent to those of ownership. Moreover, the
fact that the holder is a relative or relative of a spouse and sharing the same
home as an access person may in itself indicate that the access person would
obtain benefits substantially equivalent to those of ownership from securities
held in the name of such relative. Thus, absent countervailing facts, it is
expected that securities held by relatives who share the same home as an access
person will be treated as being beneficially owned by the access person.
An access person also is regarded as the beneficial owner of securities
held in the name of a spouse, minor children or other person, even though he
does not obtain therefrom the aforementioned benefits of ownership, if he can
vest or revest title in himself at once or at some future time.
<PAGE>
EXHIBIT B
INDEX OPTIONS ON A BROAD-BASED INDEX
<TABLE>
<CAPTION>
TICKER SYMBOL DESCRIPTION
<S> <C>
NIK Nikkei 300 Index CI/Euro
OEX S&P 100 Close/Amer Index
OEW S&P 100 Close/Amer Index
OEY S&P 100 Close/Amer Index
SPB S&P 500 Index
SPZ S&P 500 Open/Euro Index
SPX S&P 500 Open/Euro Index
SXZ S&P 500 (Wrap)
SXB S&P 500 Open/Euro Index
RUZ Russell 2000 Open/Euro Index
RUT Russell 2000 Open/Euro Index
MID S&P Midcap 400 Open/Euro Index
NDX NASDAQ- 100 Open/Euro Index
NDU NASDAQ- 100 Open/Euro Index
NDZ NASDAQ- 100 Open/Euro Index
NDV NASDAQ- 100 Open/Euro Index
NCZ NASDAQ- 100 Open/Euro Index
SML S&P Small Cap 600
TPX U.S. Top 100 Sector
SPL S&P 500 Long-Term Close
ZRU Russell 2000 L-T Open./Euro
VRU Russell 2000 Long-Term Index
</TABLE>
t: \george\bible\20-20\code-ethics 2-29-00
<PAGE>
PRUDENTIAL INVESTMENT CORPORATION
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
CODE OF ETHICS ADOPTED PURSUANT TO RULE 17j-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
(THE CODE)
1. PURPOSES
The Code has been adopted by the Board of Directors/Trustees or the
Duly Appointed Officer-In-Charge of the Prudential Mutual Fund (hereinafter,
referred to as the "Fund"), the Manager, the Adviser/Subadviser, and the
Principal Underwriter in accordance with Rule 17j-1(c) under the Investment
Company Act of 1940 (the Act) and in accordance with the following general
principles:
(1) THE DUTY AT ALL TIMES TO PLACE THE INTERESTS OF
SHAREHOLDERS FIRST.
Investment company personnel should scrupulously
avoid serving their own personal interests ahead of
shareholders' interests in any decision relating to their
personal investments.
(2) THE REQUIREMENT THAT ALL PERSONAL SECURITIES TRANSACTIONS
BE CONDUCTED CONSISTENT WITH THE CODE AND IN SUCH A MANNER AS
TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY
ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND RESPONSIBILITY.
Investment company personnel must not only seek to
achieve technical compliance with the Code but should strive
to abide by its spirit and the principles articulated herein.
(3) THE FUNDAMENTAL STANDARD THAT INVESTMENT COMPANY PERSONNEL
SHOULD NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS.
Investment company personnel must avoid any situation
that might compromise, or call into question, their exercise
of fully independent
<PAGE>
judgment in the interest of shareholders, including, but not
limited to the receipt of unusual investment opportunities,
perquisites, or gifts of more than a DE MINIMIS value from
persons doing or seeking business with the Fund.
Rule 17j-1 under the Act generally proscribes fraudulent or
manipulative practices with respect to a purchase or sale of a security held or
to be acquired (as such term is defined in Section 2.) by an investment company,
if effected by an associated person of such company.
The purpose of the Code is to establish procedures consistent with the
Act and Rule 17j-1 to give effect to the following general prohibitions as set
forth in Rule 17j-1(b) as follows:
(a) It shall be unlawful for any affiliated person of or
Principal Underwriter for a registered investment company, or any
affiliated person of an investment adviser of or principal underwriter
for a registered investment company in connection with the purchase or
sale, directly or indirectly, by such person of a security held or to
be acquired, by such registered investment company:
(1) To employ any device, scheme or artifice to
defraud such registered investment company;
(2) To make to such registered investment company any
untrue statement of a material fact or omit to state to such
registered investment company a material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading;
(3) To engage in any act, practice, or course of
business which operates or would operate as a fraud or deceit
upon any such registered investment company; or
2
<PAGE>
(4) To engage in any manipulative practice with
respect to such registered investment company.
2. DEFINITIONS
(a) "Access Person" means any director/trustee, officer,
general partner or Advisory Person (including any Investment Personnel,
as that term is defined herein) of the Fund, the Manager, the
Adviser/Subadviser, or the Principal Underwriter.
(b) "Adviser/Subadviser" means the Adviser or Subadviser of
the Fund or both as the context may require.
(c) "Advisory Person" means (i) any employee of the Fund,
Manager or Adviser/Subadviser (or of any company in a control
relationship to the Fund, Manager or Adviser/Subadviser) who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of a security by the Fund, or whose functions relate to the making of
any recommendations with respect to such purchases or sales; and (ii)
any natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of a security.
(d) "Beneficial Ownership" will be interpreted in the same
manner as it would be under Securities Exchange Act Rule 16a-1(a)(2) in
determining which security holdings of a person are subject to the
reporting and short-swing profit provisions of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect
beneficial ownership will apply to all securities which an Access
Person has or acquires (EXHIBIT A).
(e) "Complex" means the group of registered investment
companies for which Prudential Investments Fund Management LLC serves
as Manager; provided, however, that with respect to Access Persons of
the Subadviser (including any unit or subdivision thereof), "Complex"
means the group of registered investment companies in the Complex
advised by the Subadviser or unit or subdivision thereof.
(f) "Compliance Officer" means the person designated by the
Manager, the Adviser/Subadviser, or Principal Underwriter (including
his or her designee) as having responsibility for compliance with the
requirements of the Code.
3
<PAGE>
(g) "Control" will have the same meaning as that set forth in
Section 2(a)(9) of the Act.
(h) "Disinterested Director/Trustee" means a Director/ Trustee
of the Fund who is not an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Act.
An interested Director/Trustee who would not otherwise be
deemed to be an Access Person, shall be treated as a Disinterested
Director/Trustee for purposes of compliance with the provisions of the
Code.
(i) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act of
1934.
(j) "Investment Personnel" means: (a) Portfolio Managers and
other Advisory Persons who provide investment information and/or advice
to the Portfolio Manager(s) and/or help execute the Portfolio
Manager's(s') investment decisions, including securities analysts and
traders ; and (b) any natural person in a control relationship to the
Fund who obtains information concerning recommendations made to the
Fund with regard to the purchase or sale of a security.
(k) "Manager" means Prudential Investments Fund Management,
LLC.
(l) "Portfolio Manager" means any Advisory Person who has the
direct responsibility and authority to make investment decisions for
the Fund.
(m) "Private placement" means a limited offering that is
exempt from registration under the Securities Act of 1933 pursuant to
section 4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule
506 under such Securities Act.
(n) "Security" will have the meaning set forth in Section
2(a)(36) of the Act, except that it will not include shares of
registered open-end investment companies, direct obligations of the
Government of the United States, , short-term debt securities which are
"government securities" within the meaning of Section 2(a)(16) of the
Act, bankers' acceptances, bank certificates of deposit, commercial
paper and such other money
4
<PAGE>
market instruments as are designated by the Compliance Officer. For
purposes of the Code, an "equivalent Security" is one that has a
substantial economic relationship to another Security. This would
include, among other things, (1) a Security that is exchangeable for or
convertible into another Security, (2) with respect to an equity
Security, a Security having the same issuer (including a private issue
by the same issuer) and any derivative, option or warrant relating to
that Security and (3) with respect to a fixed-income Security, a
Security having the same issuer, maturity, coupon and rating.
(o) "Security held or to be acquired" means any Security or
any equivalent Security which, within the most recent 15 days: (1) is
or has been held by the Fund; or (2) is being considered by the Fund or
its investment adviser for purchase by the Fund.
3. APPLICABILITY
The Code applies to all Access Persons and the Compliance Officer shall
provide each Access Person with a copy of the Code. The prohibitions described
below will only apply to a transaction in a Security in which the designated
Access Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership. The Compliance Officer will maintain a list of
all Access Persons who are currently, and within the past five years, subject to
the Code.
4. PROHIBITED PURCHASES AND SALES
A. INITIAL PUBLIC OFFERINGS
No Investment Personnel may acquire any Securities in an initial public
offering. For purposes of this restriction, "Initial Public Offerings" shall not
include offerings of government and municipal securities.
B. PRIVATE PLACEMENTS
No Investment Personnel may acquire any Securities in a private
placement
5
<PAGE>
without prior approval.
(i) Prior approval must be obtained in accordance with the
preclearance procedure described in Section 6 below. Such approval will
take into account, among other factors, whether the investment
opportunity should be reserved for the Fund and its shareholders and
whether the opportunity is being offered to the Investment Personnel by
virtue of his or her position with the Fund. The Adviser/Subadviser
shall maintain a record of such prior approval and reason for same, for
at least 5 years after the end of the fiscal year in which the approval
is granted.
(ii) Investment Personnel who have been authorized to acquire
Securities in a private placement must disclose that investment to the
chief investment officer (including his or her designee) of the
Adviser/Subadviser (or of any unit or subdivision thereof) or the
Compliance Officer when they play a part in any subsequent
consideration of an investment by the Fund in the issuer. In such
circumstances, the Fund's decision to purchase Securities of the issuer
will be subject to an independent review by appropriate personnel with
no personal interest in the issuer.
C. BLACKOUT PERIODS
(i) Except as provided in Section 5 below, Access Persons are
prohibited from executing a Securities transaction on a day during
which any investment
6
<PAGE>
company in the Complex has a pending "buy" or "sell" order in the same
or an equivalent Security and until such time as that order is executed
or withdrawn; provided, however, that this prohibition shall not apply
to Disinterested Directors/Trustees except if they have actual
knowledge of trading by any fund in the Complex and, in any event, only
with respect to those funds on whose boards they sit.
This prohibition shall also not apply to Access Persons of the
Subadviser who do not, in the ordinary course of fulfilling his or her
official duties, have access to information regarding the purchase and
sale of Securities for the Fund and are not engaged in the day-to-day
operations of the Fund; provided that Securities investments effected
by such Access Persons during the proscribed period are not effected
with knowledge of the purchase or sale of the same or equivalent
Securities by any fund in the Complex.
A "pending 'buy' or 'sell' order" exists when a decision to
purchase or sell a Security has been made and communicated.
(ii) Portfolio Managers are prohibited from buying or selling
a Security within seven calendar days before or after the Fund trades
in the same or an equivalent Security. Nevertheless, a personal trade
by any Investment Personnel shall not prevent a Fund in the same
Complex from trading in the same or an equivalent security. However,
such a transaction shall be subject to independent review by the
Compliance Officer.
(iii) If trades are effected during the periods proscribed in
(i) or (ii)
7
<PAGE>
above, except as provided in (iv) below with respect to (i) above, any
profits realized on such trades will be promptly required to be
disgorged to the Fund.
(iv) A transaction by Access Persons (other than Investment
Personnel) inadvertently effected during the period proscribed in (i)
above will not be considered a violation of the Code and disgorgement
will not be required so long as the transaction was effected in
accordance with the preclearance procedures described in Section 6
below and without prior knowledge of trading by any fund in the Complex
in the same or an equivalent Security.
D. SHORT-TERM TRADING PROFITS
Except as provided in Section 5 below, Investment Personnel are
prohibited from profiting from a purchase and sale, or sale and purchase, of the
same or an equivalent Security within any 60 calendar day period. If trades are
effected during the proscribed period, any profits realized on such trades will
be immediately required to be disgorged to the Fund.
E. SHORT SALES
No Access Person may sell any security short which is owned by any Fund
in the Complex. Access Persons may, however make short sales when he/she owns an
equivalent amount of the same security.
F. OPTIONS
No Access Person may write a naked call option or buy a naked put
option on a security owned by any Fund in the Complex. Access Persons may
purchase options on securities not held by any Fund in the Complex, or purchase
call options or write put
8
<PAGE>
options on securities owned by any Fund in the Complex, subject to preclearance
and the same restrictions applicable to other Securities. Access Persons may
write covered call options or buy covered put options on a Security owned by any
Fund in the Complex at the discretion of the Compliance Officer.
G. INVESTMENT CLUBS
No Access Person may participate in an investment club.
5. EXEMPTED TRANSACTIONS
Subject to preclearance in accordance with Section 6 below with respect
to subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C)
and 4(D) will not apply to the following:
(a) Purchases or sales of Securities effected in any account
over which the Access Person has no direct or indirect influence or
control or in any account of the Access Person which is managed on a
discretionary basis by a person other than such Access Person and with
respect to which such Access Person does not in fact influence or
control such transactions.
(b) Purchases or sales of Securities (or their equivalents)
which are not eligible for purchase or sale by any fund in the Complex.
(c) Purchases or sales of Securities which are non-volitional
on the part of either the Access Person or any fund in the Complex.
(d) Purchases of Securities which are part of an automatic
dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by
an issuer PRO RATA to all holders of a class of its Securities, to the
extent such rights were acquired from such issuer, and sales of such
rights so acquired.
(f) Any equity Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 500
shares or less in the aggregate, if (i) the Access Person has no prior
knowledge
9
<PAGE>
of activity in such security by any fund in the Complex and (ii) the
issuer is listed on The New York Stock Exchange or has a market
capitalization (outstanding shares multiplied by the current price per
share) greater than $1 billion (or a corresponding market
capitalization in foreign markets).
(g) Any fixed-income Securities transaction, or series of
related transactions effected over a 30 calendar day period, involving
100 units ($100,000 principal amount) or less in the aggregate, if the
Access Person has no prior knowledge of transactions in such Securities
by any fund in the Complex.
(h) Any transaction in index options effected on a broad-based
index (See Exhibit B.)(1)
(i) Purchases or sales of Securities which receive the prior
approval of the Compliance Officer (such person having no personal
interest in such purchases or sales), based on a determination that no
abuse is involved and that such purchases and sales are not likely to
have any economic impact on any fund in the Complex or on its ability
to purchase or sell Securities of the same class or other Securities of
the same issuer.
(j) Purchases or sales of Unit Investment Trusts.
6. PRECLEARANCE
Access Persons (other than Disinterested Directors/Trustees) must
preclear all personal Securities investments with the exception of those
identified in subparts (a), (c), (d), (h) and (j) of Section 5 above.
All requests for preclearance must be submitted to the Compliance
Officer for approval. All approved orders must be executed no later than 5:00
p.m. local time on the business day following the date preclearance is granted.
If any order is not timely executed, a request for preclearance must be
resubmitted.
- -----------------
(1) Exhibit B will be amended by the Compliance Officer as necessary.
10
<PAGE>
7. REPORTING
(a) Disinterested Directors/Trustees shall report to the Secretary of
the Fund or the Compliance Officer the information described in Section 7(b)
hereof with respect to transactions in any Security in which such Disinterested
Director/Trustee has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in the Security ONLY if such Disinterested
Director/Trustee, at the time of that transaction knew or, in the ordinary
course of fulfilling his or her official duties as a Director/Trustee of the
Fund, should have known that, during the 15-day period immediately preceding or
subsequent to the date of the transaction in a Security by such
Director/Trustee, such Security is or was purchased or sold by the Fund or was
being considered for purchase or sale by the Fund, the Manager or
Adviser/Subadviser; provided, however, that a Disinterested Director/Trustee is
not required to make a report with respect to transactions effected in any
account over which such Director/Trustee does not have any direct or indirect
influence or control or in any account of the Disinterested Director/Trustee
which is managed on a discretionary basis by a person other than such
Director/Trustee and with respect to which such Director/Trustee does not in
fact influence or control such transactions. The Secretary of the Fund or the
Compliance Officer shall maintain such reports and such other records to the
extent required by Rule 17j-1 under the Act.
(b) Every report required by Section 7(a) hereof shall be made not
later than ten days after the end of the calendar quarter in which the
transaction to which the report relates was effected, and shall contain the
following information:
11
<PAGE>
(i) The date of the transaction, the title and the number of
shares, and the principal amount of each Security involved;
(ii) The nature of the transaction (I.E., purchase, sale or any
other type of acquisition or disposition);
(iii) The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(v) The date that the report is submitted.
(c) Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the Security to which the report
relates.
8. RECORDS OF SECURITIES TRANSACTIONS AND POST-TRADE REVIEW
Access Persons (other than Disinterested Directors/Trustees) are
required to direct their brokers to supply, on a timely basis, duplicate copies
of confirmations of all personal Securities transactions and copies of periodic
statements for all Securities accounts in which such Access Persons have a
Beneficial Ownership interest to the Compliance Officer. Such instructions must
be made upon becoming an Access Person and promptly as new accounts are
established, but no later than ten days after the end of a calendar quarter,
with respect to any account established by the Access Person in which any
securities were held during the quarter for the direct or indirect beneficial
interest of the Access Person. Notification must be made in writing and a copy
of the notification must be submitted to Compliance. This notification will
include the broker, dealer or bank with which the account was established and
the date the account was established.
12
<PAGE>
Compliance with this Code requirement will be deemed to satisfy the
reporting requirements imposed on Access Persons under Rule 17j-1(d), provided,
however, that such confirmations and statements contain all the information
required by Section 7. b. hereof and are furnished within the time period
required by such section.
The Compliance Officer will periodically review the personal investment
activity and holdings reports of all Access Persons (including Disinterested
Directors/Trustees with respect to Securities transactions reported pursuant to
Section 7 above).
9. DISCLOSURE OF PERSONAL HOLDINGS
Within ten days after an individual first becomes an Access Person and
thereafter on an annual basis, each Access Person (other than Disinterested
Directors/Trustees) must disclose all personal Securities holdings. Such
disclosure must be made in writing and be as of the date the individual first
became an Access Person with respect to the initial report and by January 30 of
each year, including holdings information as of December 31, with respect to the
annual report. All such reports shall include the following: title, number of
shares and principal amount of each security held, name of broker, dealer or
bank with whom these securities are held and the date of submission by the
Access Person.
10. GIFTS
Access Persons are prohibited from receiving any gift or other thing of
more than $100 in value from any person or entity that does business with or on
behalf of the Fund. Occasional business meals or entertainment (theatrical or
sporting events, etc.) are permitted so long as they are not excessive in number
or cost.
13
<PAGE>
11. SERVICE AS A DIRECTOR
Investment Personnel are prohibited from serving on the boards of
directors of publicly traded companies, absent prior authorization based upon a
determination that the board service would be consistent with the interests of
the Fund and its shareholders. In the limited instances that such board service
is authorized, Investment Personnel will be isolated from those making
investment decisions affecting transactions in Securities issued by any publicly
traded company on whose board such Investment Personnel serves as a director
through the use of "Chinese Wall" or other procedures designed to address the
potential conflicts of interest.
12. CERTIFICATION OF COMPLIANCE WITH THE CODE
Access Persons are required to certify annually as follows:
(i) that they have read and understood the Code;
(ii) that they recognize that they are subject to the Code;
(iii) that they have complied with the requirements of the Code; and
(iv) that they have disclosed or reported all personal Securities
transactions required to be disclosed or reported pursuant to
the requirements of the Code.
13. CODE VIOLATIONS
All violations of the Code will be reported to the Board of
Directors/Trustees of the Fund on a quarterly basis. The Board of
Directors/Trustees may take such action as it deems appropriate.
14. REVIEW BY THE BOARD OF DIRECTORS/TRUSTEES
14
<PAGE>
The Board of Directors/Trustees will be provided with an annual report
which at a minimum:
(i) certifies to the Board that the Fund, Manager, Investment
Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably
necessary to prevent its Access persons from violating its Code.
(ii) summarizes existing procedures concerning personal investing and
any changes in the procedures made during the preceding year;
(iii) identifies material Code or procedural violations and sanctions
imposed in response to those material violations; and
(iv) identifies any recommended changes in existing restrictions or
procedures based upon the Fund's experience under the Code, evolving industry
practices, or developments in applicable laws and regulations.
The Board will review such report and determine if any further action
is required.
15
<PAGE>
EXPLANATORY NOTES TO CODE
1. No comparable Code requirements have been imposed upon Prudential
Mutual Fund Services LLC, the Fund's transfer agent, or those of its directors
or officers who are not Directors/Trustees or Officers of the Fund since they
are deemed not to constitute Access Persons or Advisory Persons as defined in
paragraphs (e)(1) and (2) of Rule 17j-1.
Dated: February 29, 2000
16
<PAGE>
EXHIBIT A
DEFINITION OF BENEFICIAL OWNERSHIP
The term "beneficial ownership" of securities would include not only
ownership of securities held by an access person for his or her own benefit,
whether in bearer form or registered in his or her own name or otherwise, but
also ownership of securities held for his or her benefit by other (regardless of
whether or how they are registered) such as custodians, brokers, executors,
administrators, or trustees (including trusts in which he or she has only a
remainder interest), and securities held for his or her account by pledges,
securities owned by a partnership in which he or she should regard as a personal
holding corporation. Correspondingly, this term would exclude securities held by
an access person for the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an access person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an access person where such person enjoys "benefits
substantially equivalent to ownership". The SEC has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances such relationship ordinarily
results in such person obtaining benefits substantially equivalent to ownership,
e.g., application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet from other
sources, or the ability to exercise a controlling influence over the purchase,
sale or voting of such securities.
An access person also may be regarded as the beneficial owner of
securities held in the name of another person, if by reason of any contact,
understanding, relationship, agreement or other arrangement, he obtains
therefrom benefits substantially equivalent to those of ownership. Moreover, the
fact that the holder is a relative or relative of a spouse and sharing the same
home as an access person may in itself indicate that the access person would
obtain benefits substantially equivalent to those of ownership from securities
held in the name of such relative. Thus, absent countervailing facts, it is
expected that securities held by relatives who share the same home as an access
person will be treated as being beneficially owned by the access person.
An access person also is regarded as the beneficial owner of securities
held in the name of a spouse, minor children or other person, even though he
does not obtain therefrom the aforementioned benefits of ownership, if he can
vest or revest title in himself at once or at some future time.
<PAGE>
EXHIBIT B
INDEX OPTIONS ON A BROAD-BASED INDEX
<TABLE>
<CAPTION>
TICKER SYMBOL DESCRIPTION
<S> <C>
NIK Nikkei 300 Index CI/Euro
OEX S&P 100 Close/Amer Index
OEW S&P 100 Close/Amer Index
OEY S&P 100 Close/Amer Index
SPB S&P 500 Index
SPZ S&P 500 Open/Euro Index
SPX S&P 500 Open/Euro Index
SXZ S&P 500 (Wrap)
SXB S&P 500 Open/Euro Index
RUZ Russell 2000 Open/Euro Index
RUT Russell 2000 Open/Euro Index
MID S&P Midcap 400 Open/Euro Index
NDX NASDAQ- 100 Open/Euro Index
NDU NASDAQ- 100 Open/Euro Index
NDZ NASDAQ- 100 Open/Euro Index
NDV NASDAQ- 100 Open/Euro Index
NCZ NASDAQ- 100 Open/Euro Index
SML S&P Small Cap 600
TPX U.S. Top 100 Sector
SPL S&P 500 Long-Term Close
ZRU Russell 2000 L-T Open./Euro
VRU Russell 2000 Long-Term Index
</TABLE>
t: \george\bible\20-20\PIFM.PIC.PIMS.Code.Ethics 2-29-00
<PAGE>
JENNISON ASSOCIATES LLC
CODE OF ETHICS,
POLICY ON INSIDER TRADING
AND
PERSONAL TRADING POLICY
AS AMENDED DECEMBER 6, 1999
<PAGE>
SECTION I
CODE OF ETHICS
FOR
JENNISON ASSOCIATES LLC
This Code sets forth rules, regulations and standards of conduct for the
employees of Jennison Associates LLC. It bears the approval of the Corporation's
Board of Directors and applies to Jennison Associates and all subsidiaries.
The Code incorporates The Prudential Insurance Company of America's ethics
policies as well as additional policies specific to Jennison Associates LLC.
Prudential's Code of Ethics, "Making the Right Choices", may be found as Exhibit
Q in Jennison Associates' Compliance Manual.
The prescribed guidelines assure that the high ethical standards long
maintained by Jennison continue to be applied. The purpose of the Code is to
preclude circumstances which may lead to or give the appearance of conflicts of
interest, insider trading, or unethical business conduct. The rules prohibit
certain activities and personal financial interests as well as require
disclosure of personal investments and related business activities of all
directors, officers and employees.
ERISA and the federal securities laws define an investment advisor as a
fiduciary who owes his clients a duty of undivided loyalty, who shall not engage
in any activity in conflict with the interests of the client. As a fiduciary,
our personal and corporate ethics must be above reproach. Actions which expose
any of us or the organization to even the appearance of impropriety must not
occur.
The excellent name of our firm continues to be a direct reflection of the
conduct of each of us in everything we do.
Being fully aware of and strictly adhering to the Code of Ethics is the
responsibility of each Jennison Associates employee.
<PAGE>
CONFIDENTIAL INFORMATION
Employees may become privy to confidential information (information not
generally available to the public) concerning the affairs and business
transactions of Jennison, companies researched by us for investment, our present
and prospective clients, suppliers, officers and other staff members.
Confidential information also includes trade secrets and other proprietary
information of the Corporation such as business or product plans, systems,
methods, software, manuals and client lists. Safeguarding confidential
information is essential to the conduct of our business. Caution and discretion
are required in the use of such information and in sharing it only with those
who have a legitimate need to know.
A) PERSONAL USE: Confidential information obtained or developed as a result
of employment with the Corporation is not to be used or disclosed for the
purpose of furthering any private interest or as a means of making any personal
gain. Use or disclosure of such information could result in civil or criminal
penalties against the Corporation or the individual responsible for disclosing
such information.
Further guidelines pertaining to confidential information are contained in
the "Policy Statement on Insider Trading." (Set forth on page 8 in the section
dedicated specifically to Insider Trading.)
B) RELEASE OF CLIENT INFORMATION: Information concerning a client which has
been requested by third persons, organizations or governmental bodies may only
be released with the consent of the client involved. All requests for
information concerning a client (other than routine credit inquiries), including
requests pursuant to the legal process (such as subpoenas or court orders) must
be promptly referred to Karen E. Kohler. No information may be released, nor
should the client involved be contacted, until so directed by Karen E. Kohler.
In order to preserve the rights of our clients and to limit the firm's
liability concerning the release of client proprietary information, care must be
taken to:
* Limit use and discussion of information obtained on the job to normal
business activities.
* Request and use only information which is related to our business needs.
* Restrict access to records to those with proper authorization and
legitimate business needs.
* Include only pertinent and accurate data in files which are used as a
basis for taking action or making decisions.
<PAGE>
CONFLICTS OF INTEREST
You should avoid actual or apparent conflicts of interest - that is, any
personal interest outside the Company which could be placed ahead of your
obligations to our clients, Jennison Associates or The Prudential Insurance
Company of America. Conflicts may exist even when no wrong is done. The
opportunity to act improperly may be enough to create the appearance of a
conflict.
We recognize and respect an employee's right of privacy concerning personal
affairs, but we must require a full and timely disclosure of any situation which
could result in a conflict of interest or even the appearance of a conflict.
Whether or not a conflict exists will be determined by the Company, not by the
employee involved.
To reinforce our commitment to the avoidance of potential conflicts of
interest, the following rules have been adopted:
1) YOU MAY NOT, without first having secured prior approval from the Board
of Directors, serve as a director, officer, employee, partner or trustee - nor
hold any other position of substantial interest - in any outside business
enterprise. You do not need prior approval, however, if the following three
conditions are met: one, the enterprise is a family firm owned principally by
other members of your family; two, the family business is not doing business
with Jennison or The Prudential; and three, the services required will not
interfere with your duties or your independence of judgment. Significant
involvement by employees in outside business activity is generally unacceptable.
In addition to securing prior approval for outside business activities, you will
be required to disclose all relationships with outside enterprises annually.
* Note - The above deals only with positions in business enterprises. It
does not effect Jennison's practice of permitting employees to be associated
with governmental, educational, charitable, religious or other civic
organizations. These activities may be entered into without prior consent, but
must still be disclosed on an annual basis.
2) YOU MAY NOT act on behalf of Jennison in connection with any transaction
in which you have a personal interest. This rule does not apply to any personal
interest resulting from your participation in any Jennison or Prudential plan in
the nature of incentive compensation, or in the case of a plan which provides
for direct participation in specific transactions by Jennison's Board of
Directors.
3) YOU MAY NOT, without prior approval from the Board of Directors, have a
substantial interest in any outside business which, to your knowledge, is
involved currently in a business transaction with Jennison or The Prudential, or
is engaged in businesses similar to any business engaged in by Jennison. A
substantial interest includes any investment in the outside business involving
an amount greater than 10 percent of your gross assets, or $10,000 if that
amount is larger, or involving an ownership interest greater than 2 percent of
the outstanding equity interests. You do not need approval to invest in
open-ended registered investment companies such as investments in mutual funds
and similar enterprises which are publicly owned.
<PAGE>
4) YOU MAY NOT, without prior approval of the Board of Directors, engage in
any transaction involving the purchase of products and/or services from
Jennison, except on the same terms and conditions as they are offered to the
public. Plans offering services to employees approved by the Board of Directors
are exempt from this rule.
5.) YOU MAY NOT purchase an equity interest in any competitor. Employees
and their immediate families are also prohibited from investing in securities of
a client or supplier with whom the staff member regularly deals even if the
securities are widely traded.
OTHER BUSINESS ACTIVITIES
ISSUES REGARDING THE RETENTION OF SUPPLIERS: The choice of our suppliers
must be based on quality, reliability, price, service, and technical advantages.
GIFTS: Jennison employees and their immediate families should not solicit,
accept, retain or provide any gifts or favors which might influence decisions
you or the recipient must make in business transactions involving Jennison or
which others might reasonably believe could influence those decisions. Even a
nominal gift should not be accepted if, to a reasonable observer, it might
appear that the gift would influence your business decisions.
Modest gifts and favors, which would not be regarded by others as improper,
may be accepted or given on an occasional basis. Examples of such gifts are
those received as normal business courtesies (i.e. meals or golf games);
non-cash gifts of nominal value (such as received at Holiday time); gifts
received because of kinship, marriage or social relationships entirely beyond
and apart from an organization in which membership or an official position is
held as approved by the Corporation. Entertainment which satisfies these
requirements and conforms to generally accepted business practices also is
permissible. Please reference the Gifts and Entertainment section of Jennison
Associates' Compliance Manual for a more detailed explanation of Jennison's
policy towards gifts and entertainment.
IMPROPER PAYMENTS - KICKBACKS: In the conduct of the Corporation's
business, no bribes, kickbacks, or similar remuneration or consideration of any
kind are to be given or offered to any individual or organization or to any
intermediaries such as agents, attorneys or other consultants, for the purpose
of influencing such individual or organization in obtaining or retaining
business for, or directing business to, the Corporation.
BOOKS, RECORDS AND ACCOUNTS: The integrity of the accounting records of the
Corporation is essential. All receipts and expenditures, including personal
expense statements must be supported by documents that accurately and properly
describe such expenses. Staff members responsible for approving expenditures or
for keeping books, records and accounts for the Corporation are required to
approve and record all expenditures and other entries based upon proper
supporting documents so that the accounting records of the Corporation are
maintained in reasonable detail, reflecting accurately and fairly all
transactions of the Corporation including the
5
<PAGE>
disposition of its assets and liabilities. The falsification of any book, record
or account of the Corporation, the submission of any false personal expense
statement, claim for reimbursement of a non-business personal expense, or false
claim for an employee benefit plan payment are prohibited. Disciplinary action
will be taken against employees who violate these rules, which may result in
dismissal.
LAWS AND REGULATIONS: The activities of the Corporation must always be in
full compliance with applicable laws and regulations. It is the Company's policy
to be in strict compliance with all laws and regulations applied to our
business. We recognize, however, that some laws and regulations may be ambiguous
and difficult to interpret. Good faith efforts to follow the spirit and intent
of all laws is expected. To ensure compliance, the Corporation intends to
educate its employees on laws related to Jennison's activities which may include
periodically issuing bulletins, manuals and memoranda. Staff members are
expected to read all such materials and be familiar with their content.
OUTSIDE ACTIVITIES & POLITICAL AFFILIATIONS: Jennison Associates does not
contribute financial or other support to political parties or candidates for
public office except where lawfully permitted and approved in advance in
accordance with procedures adopted by Jennison's Board of Directors. Employees
may, of course, make political contributions, but only on their own behalf; they
will not be reimbursed by the Company for such contributions.
Legislation generally prohibits the Corporation or anyone acting on its
behalf from making an expenditure or contribution of cash or anything else of
monetary value which directly or indirectly is in connection with an election to
political office; as, for example granting loans at preferential rates or
providing non-financial support to a political candidate or party by donating
office facilities. Otherwise, individual participation in political and civic
activities conducted outside of normal business hours is encouraged, including
the making of personal contributions to political candidates or activities.
Employees are free to seek and hold an elective or appointive public
office, provided you do not do so as a representative of the Company. However,
you must conduct campaign activities and perform the duties of the office in a
manner that does not interfere with your responsibilities to the firm.
6
<PAGE>
COMPLIANCE WITH THE CODE & CONSEQUENCES IF VIOLATION OF THE CODE OCCURS:
Each year all employees will be required to complete a form certifying that
they have read this booklet, understand their responsibilities, and are in
compliance with the requirements set forth in this statement.
This process should remind us of the Company's concern with ethical issues
and its desire to avoid conflicts of interest or their appearance. It should
also prompt us to examine our personal circumstances in light of the Company's
philosophy and policies regarding ethics.
Certain key employees will be required to complete a form verifying that
they have complied with all company procedures and filed disclosures of
significant personal holdings and corporate affiliations.
If any staff member has reason to believe that any situation may have
resulted in a violation of any provision of the Code of Ethics, whether by that
staff member or by another, the matter must be reported promptly to Karen E.
Kohler.
Violation of any provision of the Code of Ethics by any staff member may
constitute grounds for disciplinary action, including dismissal.
7
<PAGE>
SECTION II
INSIDER TRADING
As a result of recent legislative events, particularly the enactment of the
Insider Trading and Securities Fraud Enforcement Act of 1988, the Securities
Exchange Acts and the Investment Advisors Act of 1940 require that all
investment advisors establish, maintain and enforce policies and supervisory
procedures designed to prevent the misuse of material, non-public information by
such investment advisor, and any associated person.
This section of the Code sets forth Jennison Associates' policy statement
on insider trading. It explains some of the terms and concepts associated with
insider trading, as well as the civil and criminal penalties for insider trading
violations. In addition, it sets forth the necessary procedures required to
implement Jennison Associates' Insider Trading Policy Statement.
This policy applies to all Jennison Associates' employees, as well as the
employees of all affiliated companies.
8
<PAGE>
JENNISON ASSOCIATES' POLICY STATEMENT
AGAINST INSIDER TRADING
When contemplating a transaction for your personal account, or an account
in which you may have a direct or indirect personal or family interest, we must
be certain that such transaction is not in conflict with the interests of our
clients. Specific rules in this area are difficult, and in the final analysis,
each of us must make our own determination as to whether a transaction is in
conflict with client interests. Although it is not possible to anticipate all
potential conflicts of interest, we have tried to set a standard that protects
the firm's clients, yet is also practical for our employees. The Company
recognizes the desirability of giving its corporate personnel reasonable freedom
with respect to their investment activities, on behalf of themselves, their
families, and in some cases non-client accounts (i.e. charitable or educational
organizations on whose boards of directors corporate personnel serve). However,
personal investment activity may conflict with the interests of the Company's
clients. In order to avoid such conflicts -- or even the appearance of conflicts
- -- the Company has adopted the following policy:
Jennison Associates LLC forbids any director, officer or employee from
trading, either personally or on behalf of clients or others, on material,
non-public information or communicating material, non-public information to
others in violation of the law. Said conduct is deemed to be "insider trading."
Such policy applies to every director, officer and employee and extends to
activities within and outside their duties at Jennison Associates.
Every director, officer, and employee is required to read and retain this
policy statement. Questions regarding Jennison Associates' Insider Trading
policy and procedures should be referred to Karen E. Kohler or John H. Hobbs.
EXPLANATION OF RELEVANT TERMS AND CONCEPTS
Although insider trading is illegal, Congress has not defined "insider",
"material" or "non-public information". Instead the courts have developed
definitions of these terms. Set forth below are very general descriptions of
these terms. However, it is usually not easily determined whether information is
"material" or "non-public" and, therefore, whenever you have any questions as to
whether information is material or non-public, consult with Karen E. Kohler. Do
not make this decision yourself.
1) WHO IS AN INSIDER?
9
<PAGE>
The concept of an "insider" is broad. It includes officers, directors and
employees of a company. A person may be a "temporary insider" if he or she
enters into a special confidential relationship in the conduct of a company's
affairs and as a result is given access to information solely for the company's
purposes. Examples of temporary insiders are the company's attorneys,
accountants, consultants and bank lending officers, as well as the employees of
such organizations. Jennison Associates and its employees may become "temporary
insiders" of a company in which we invest, in which we advise, or for which we
perform any other service. An outside individual may be considered an insider,
according to the Supreme Court, if the company expects the outsider to keep the
disclosed non-public information confidential or if the relationship suggests
such a duty of confidentiality.
2) WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. Material Information is defined, as:
* Information, for which there is a substantial likelihood, that a
reasonable investor would consider important in making his or her investment
decisions, or
* Information that is reasonably certain to have a substantial effect on
the price of a company's securities.
Information that directors, officers and employees should consider material
includes, but is not limited to: dividend changes, earnings estimates, changes
in previously released earnings estimates, a significant increase or decline in
orders, significant new products or discoveries, significant merger or
acquisition proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
In addition, knowledge about Jennison Associates' trading information and
patterns may be deemed material.
3) WHAT IS NON-PUBLIC INFORMATION?
Information is "non-public" until it has been effectively communicated to
the market place. One must be able to point to some fact to show that the
information is generally available to the public. For example, information found
in a report filed with the SEC, or appearing in Dow Jones, REUTERS ECONOMICS
SERVICES, THE WALL STREET JOURNAL or other publications of general circulation
would be considered public.
4) MISAPPROPRIATION THEORY
Under the "misappropriation" theory liability is established when trading
occurs on material non-public information that is stolen or misappropriated from
any other person. In U.S. V. CARPENTER, a columnist defrauded THE WALL STREET
JOURNAL by stealing non-public information from the JOURNAL and using it for
trading in the securities markets. Note that the misappropriation
10
<PAGE>
theory can be used to reach a variety of individuals not previously thought to
be encompassed under the fiduciary duty theory.
5) WHO IS A CONTROLLING PERSON?
"Controlling persons" include not only employers, but any person with power
to influence or control the direction of the management, policies or activities
of another person. Controlling persons may include not only the Company, but its
directors and officers.
PENALTIES FOR INSIDER TRADING VIOLATIONS
Penalties for trading on or communicating material non-public information
are more severe than ever. The individuals involved in such unlawful conduct may
be subject to both civil and criminal penalties. A controlling person may be
subject to civil or criminal penalties for failing to establish, maintain and
enforce Jennison Associates' Policy Statement against Insider Trading and/or if
such failure permitted or substantially contributed to an insider trading
violation.
Individuals can be subject to some or all of the penalties below even if he
or she does not personally benefit from the violation. Penalties include:
a. CIVIL INJUNCTIONS
b. TREBLE DAMAGES
c. DISGORGEMENT OF PROFITS
d. JAIL SENTENCES - Under the new laws, the maximum jail sentences for
criminal securities law violations increased from 5 years to 10 years.
e. CIVIL FINES - Persons who committed the violation may pay up to
three times the profit gained or loss avoided, whether or not the person
actually benefited.
f. CRIMINAL FINES - The employer or other "controlling persons" may
pay up to $2,500,000.
g. Violators will be barred from the securities industry.
11
<PAGE>
SECTION III
IMPLEMENTATION PROCEDURES & POLICY
The following procedures have been established to assist the officers,
directors and employees of Jennison Associates in preventing and detecting
insider trading as well as to impose sanctions against insider trading. Every
officer, director and employee must follow these procedures or risk serious
sanctions, including possible dismissal, substantial personal liability and
criminal penalties. If you have any questions about these procedures you should
consult Karen E. Kohler or John H. Hobbs.
1) IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including client accounts managed by
Jennison Associates, in the securities of a company about which you may have
potential inside information, ask yourself the following questions:
i. IS THE INFORMATION MATERIAL? *Would an investor consider this
information important in making his or her investment decisions? ** Would this
information substantially effect the market price of the securities if generally
disclosed?
ii. IS THE INFORMATION NON-PUBLIC? * To whom has this information been
provided? ** Has the information been effectively communicated to the
marketplace by being published in REUTERS, THE WALL STREET JOURNAL, or other
publications of general circulation?
If, after consideration of the above, you believe that the information is
material and non-public, or if you have questions as to whether the information
is material and non-public, you should take the following steps:
i. Report the matter immediately to Karen E. Kohler or John H. Hobbs.
If neither are available you should contact Mr. Louis Begley, our attorney at
Debevoise and Plimpton ((212)909-6000).
ii. Do not repurchase or sell the securities on behalf of yourself or
others, including client accounts managed by Jennison Associates.
iii. Do not communicate the information inside or outside Jennison
Associates, other than to Karen E. Kohler, John H. Hobbs, or Mr. Begley our
outside counsel.
iv. After Karen E. Kohler, John H. Hobbs, or Mr. Begley has reviewed
the issue, you will be instructed to continue the prohibitions against trading
and communication, or you will be allowed to trade and communicate the
information.
12
<PAGE>
2) RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information that you identify as material and non-public may not be
communicated to anyone, including persons within Jennison Associates LLC, except
as provided above. In addition, care should be taken so that such information is
secure. For example, files containing material non-public information should be
locked; access to computer files containing non-public information should be
restricted.
Jennison employees have no obligation to the clients of Jennison Associates
to trade or recommend trading on the basis of material, non-public (inside)
information in their possession. Jennison's fiduciary responsibility to its
clients requires that the firm and its employees regard the limitations imposed
by Federal securities laws.
3) ALLOCATION OF BROKERAGE
To supplement its own research and analysis, to corroborate data compiled
by its staff, and to consider the views and information of others in arriving at
its investment decisions, Jennison Associates, consistent with its efforts to
secure best price and execution, allocates brokerage business to those
broker-dealers in a position to provide such services.
It is the firm's policy not to allocate brokerage in consideration of the
attempted furnishing of material non-public (inside) information. Employees, in
recommending the allocation of brokerage to broker-dealers, should not give
consideration to the provision of any material non-public (inside) information.
The policy of Jennison Associates as set forth in this statement should be
brought to the attention of such broker-dealer.
4) RESOLVING ISSUES CONCERNING INSIDER TRADING
If doubt remains as to whether information is material or non-public, or if
there is any unresolved question as to the applicability or interpretation of
the foregoing procedures and standards, or as to the propriety of any action, it
must be discussed with Karen E. Kohler or John H. Hobbs before trading or
communicating the information to anyone.
This code will be distributed to all Jennison Associates personnel.
Periodically or upon request, Karen E. Kohler will meet with such personnel to
review this statement of policy, including any developments in the law and to
answer any questions of interpretation or application of this policy.
From time to time this statement of policy will be revised in the light of
developments in the law, questions of interpretation and application, and
practical experience with the procedures contemplated by the statement.
13
<PAGE>
SECTION IV
JENNISON ASSOCIATES PERSONAL TRADING POLICY
1. GENERAL POLICY AND PROCEDURES
The management of Jennison Associates is fully aware of and in no way
wishes to deter the security investments of its individual employees. The
securities markets, whether equity, fixed income, international or domestic,
offer individuals alternative methods of enhancing their personal investments.
Due to the nature of our business and our fiduciary responsibility to our
client funds, we must protect the firm and its employees from the possibilities
of both conflicts of interest and illegal insider trading in regard to their
personal security transactions.
We have adopted the following policies and procedures on employee personal
trading to insure against violations of the law. These policies and procedures
are in addition to those set forth in the Code of Ethics and the Policy
Statement Against Insider Trading.
2. RECORDKEEPING REQUIREMENTS
Jennison Associates, as an investment advisor, is required by Rule 204-2 of
the under the Investment Advisers Act of 1940, to keep records of every
transaction in securities in which any of its personnel has any direct or
indirect beneficial ownership, except transactions effected in any account over
which neither the investment adviser nor any advisory representative of the
investment adviser has any direct or indirect influence or control and
transactions in securities which are direct obligations of the United States,
mutual funds and high-quality short-term instruments. This includes transactions
for the personal accounts of an employee, as well as, transactions for the
accounts of other members of their immediate family (including the spouse, minor
children, and adults living in the same household with the officer, director, or
employee) for which they or their spouse have any direct or indirect influence
or control and trusts of which they are trustees or other accounts in which they
have any direct or indirect beneficial interest or direct or indirect influence
or control, unless the investment decisions for the account are made by an
independent investment manager in a fully discretionary account. Jennison
recognizes that some of its employees may, due to their living arrangements, be
uncertain as to their obligations under this Personal Trading Policy. If an
employee has any question or doubt as to whether they have direct or indirect
influence or control over an account, he or she must consult with the Compliance
Department as to their status and obligations with respect to the account in
question.
In addition, Jennison, as a subadviser to investment companies registered
under the Investment Company Act of 1940 (e.g., mutual funds), is required by
Rule 17j-1 under the
14
<PAGE>
Investment Company Act to review and keep records of personal investment
activities of "access persons" of these funds, unless the access person does not
have direct or indirect influence or control of the accounts. An "access person"
is defined as any director, officer, general partner or Advisory Person of a
Fund or Fund's Investment Adviser. "Advisory Person" is defined as any employee
of the Fund or investment adviser (or of any company in a control relationship
to the Fund or investment adviser) who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of investments by a Fund, or whose functions relate to the
making of any recommendations with respect to the purchases or sales. Therefore,
Jennison's "access persons" and "advisory persons" include the following:
portfolio managers, investment analysts, traders, officers and directors.
1) ACCESS PERSONS: PORTFOLIO MANAGERS, INVESTMENT ANALYSTS, TRADERS, AND OTHER
JENNISON OFFICERS AND DIRECTORS
Access Persons are required to provide the Compliance Department with the
following:
A) INITIAL HOLDINGS REPORTS:
Within 10 days of commencement of employment, an initial holdings report
detailing all personal investments (including private placements, and index
futures contracts and options thereon, but excluding US Treasury securities,
mutual fund shares, and short-term high quality debt instruments). The report
should contain the following information:
1. the title, number of shares and principal amount of each
investment in which the Access Person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held for the
direct or indirect benefit of the Access Person; and
3. The date that the report is submitted by the Access Person.
B) QUARTERLY REPORTS:
1. TRANSACTION REPORTING:Within 10 days after the end of a calendar
quarter, with respect to any transaction during the quarter in
investments in which the Access Person had any direct or indirect
beneficial ownership:
a. The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each investment involved;
b. The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
c. The price of the investment at which the transaction was effected;
d. The name of the broker, dealer or bank with or through which the
transaction was effected; and
e. The date that the report is submitted by the Access Person.
15
<PAGE>
2. PERSONAL SECURITIES ACCOUNT REPORTING:Within 10 days after the end of a
calendar quarter, with respect to any account established by the Access
Person in which any securities were held during the quarter for the
direct or indirect benefit of the Access Person:
a. The name of the broker, dealer or bank with whom the Access Person
established the account;
b. The date the account was established; and
c. The date that the report is submitted by the Access Person.
To facilitate compliance with this reporting requirement, Jennison
Associates requires that a duplicate copy of all trade confirmations and
brokerage statements be supplied directly to Jennison Associates'
Compliance Department and to the Prudential's Corporate Compliance
Department. In addition, the Compliance Department must also be notified
immediately upon the creation of any new personal investment accounts.
C) ANNUAL HOLDINGS REPORTS
Annually, the following information (which information must be current as of
a date no more than 30 days before the report is submitted):
1. The title, number of shares and principal amount of each investment in
which the Access Person had any direct or indirect beneficial ownership;
2. The name of any broker, dealer or bank with whom the Access Person
maintains an account in which any securities are held for the direct or
indirect benefit of the Access Person; and
3. The date that the report is submitted by the Access Person.
D) A copy of all discretionary investment advisory contracts or agreements
between the officer, director or employee and his investment advisors.
E) A copy of Schedule B, Schedule D, and Schedule E from federal income tax
returns on an annual basis.
2)ALL OTHER EMPLOYEES OF JENNISON ASSOCIATES
In order to ensure compliance with these regulations, all other employees
of Jennison Associates shall submit to the Compliance Department:
A.) Upon commencement of employment and no less than annually thereafter,
a report of all personal securities holdings and a report of every
personal brokerage account in which they have any direct or indirect
beneficial interest. The Compliance Department must also be notified
immediately upon the creation of any new personal investment accounts.
16
<PAGE>
The report must disclose the following material:
* Name and type of account - single, joint, trust, partnership, etc.
* A statement disclosing the general purpose of the account (e.g.,
as a trustee of XYZ College, I have agreed in accordance with the
school's Board of Directors to invest funds on behalf of XYZ
for the benefit of its annual scholarship fund).
* The institution, bank, or otherwise, where the account is
maintained.
B.) A report, including confirmation and quarter-end brokerage statements,
of every security transaction in which they, their immediate families
(including the spouse, minor children, and adults living in the same
household with the officer, director, or employee) for which they or
their spouse have any direct or indirect influence or control), and
trusts of which they are trustees or any other account in which they
have a beneficial interest and have participated or direct or indirect
influence or control.
To facilitate this aspect of employee securities trading, Jennison
Associates requires that a duplicate copy of all trade confirmations
and brokerage statements be supplied directly to Jennison Associates'
Compliance Department and to the Prudential's Corporate Compliance
Department.
C.) A copy of all discretionary investment advisory contracts or
agreements between the officer, director or employee and his
investment advisors.
D.) A copy of Schedule B, Schedule D, and Schedule E from federal income
tax returns on an annual basis.
3) NON-EMPLOYEE DIRECTORS
A.) Jennison recognizes that a director not employed by Jennison (i.e.,
directors designated by The Prudential Insurance Company of America to
sit on Jennison's Board of Directors) is subject to his or her
employer's own code of ethics, a copy of which and any amendments
thereto shall have been made available to Jennison's Compliance
Department. The Compliance Department of the non-employee director's
employer must represent quarterly to the Jennison Compliance
Department that the non-employee director has complied with the
recordkeeping and other procedures of its code of ethics during the
most recent calendar quarter. Such representation shall also state
that such policies and procedures shall be deemed adequate for
compliance with both Prudential's and Jennison's Codes of Ethics. If
there have been any violations of the employer's code of ethics by
such non-employee director, the employer's Compliance Department must
submit a detailed report of such violations and what remedial action,
if any was taken.
17
<PAGE>
B.) Non-employee directors shall be exempt from supplying a copy of
Schedule B, D, and Schedule E from their federal income tax returns.
C.) Additionally, all non-employee directors shall be exempt from the
pre-clearance procedures as described below.
3. PRE-CLEARANCE PROCEDURES
All directors, officers, and employees of Jennison Associates may need to
obtain clearance from the Personal Investment Committee prior to effecting any
securities transaction in which they or their immediate families (including the
spouse, minor children, and adults living in the same household with the
officer, director, or employee) for which they or their spouse have any direct
or indirect influence or control, have a beneficial interest on behalf of a
trust of which they are trustee, or for any other account in which they have a
beneficial interest or direct or indirect influence or control. Determination as
to whether or not a particular transaction requires pre-approval should be made
by consulting the "Compliance and Reporting of Personal Transactions Matrix"
found on Exhibit A.
Please note, voluntary tender offers are a recent addition to the
"Compliance and Reporting of Personal Transactions" matrix. They are both a
reportable transaction and one that requires pre-approval. Approval of tendering
shares into a tender offer shall be determined on a case-by-case basis by the
Personal Investment Committee.
The Personal Investment Committee will make its decision of whether to
clear a proposed trade on the basis of the personal trading restrictions set
forth -below. A member of the Compliance Department shall promptly notify the
officer, director, or employee of approval or denial to trade the requested
security. Notification of approval or denial to trade may be verbally given as
soon as possible; however, it shall be confirmed in writing within 24 hours of
the verbal notification. Please note that the approval granted will be valid
ONLY for that day in which the approval has been obtained; provided, however,
that approved orders for securities traded in certain foreign markets may be
executed within 2 business days from the date pre-clearance is granted,
depending on the time at which approval is granted and the hours of the markets
on which the security is traded are open. In other words, if a trade was not
effected on the day for which approval was originally sought, a new approval
form must be re-submitted on each subsequent day in which trading may occur. Or,
if the security for which approval has been granted is traded on foreign
markets, approval is valid for an additional day (i.e., the day for which
approval was granted and the day following the day for which approval was
granted).
Only transactions where the investment decisions for the account are made
by an independent investment manager in a fully discretionary account will be
exempt from the pre-clearance procedures. Copies of the agreement of such
discretionary accounts, as well as transaction statements or another comparable
portfolio report, must be submitted on a quarterly basis to the Compliance
Department for review and record retention.
18
<PAGE>
WRITTEN NOTICE OF YOUR INTENDED SECURITIES ACTIVITIES MUST BE FILED FOR
APPROVAL PRIOR TO EFFECTING ANY TRANSACTION FOR WHICH PRIOR APPROVAL IS
REQUIRED. The name of the security, the date, the nature of the transaction
(purchase or sale), the price, the name and relationship to you of the account
holder (self, son, daughter, spouse, father, etc.), and the name of the
broker-dealer or bank involved in the transaction must be disclosed in such
written notice. Such written notice should be submitted on the Pre-Clearance
Transaction Request Forms (Equity/Fixed Income) which can be obtained from the
Compliance Department. If proper procedures are not complied with, action will
be taken against the employee. All violations shall go before the Personal
Investment Committee and Jennison's Compliance Committee. The violators may be
asked to reverse the transaction and/or transfer the security or profits gained
over to the accounts of Jennison Associates. In addition, penalties for personal
trading violations shall be determined in accordance with the penalties schedule
set forth in Section 5, "Penalties for Violating Jennison Associates' Personal
Trading Policies." Each situation and its relevance will be given due weight. If
non-compliance with the pre-clearance procedure becomes repetitive, dismissal,
by the Board of Directors, of the employee can result.
4. PERSONAL TRADING POLICY
The following rules, regulations and restrictions have been set forth by
the Board of Directors and apply to the personal security transactions of all
employees. These rules will govern whether clearance for a proposed transaction
will be granted. These rules also apply to the sale of securities once the
purchase of a security has been pre-approved and completed.
No director, officer or employee of the Company may effect for himself,
an immediate family member (including the spouse, minor children, and adults
living in the same household with the officer, director, or employee) for which
they or their spouse have any direct or indirect influence or control, or any
trust of which they are trustee, or any other account in which they have a
beneficial interest or direct or indirect influence or control any transaction
in a security, or recommend any such transaction in a security, of which, to
his/her knowledge, the Company has effected the same for any of its clients, if
such transaction would in any way conflict with, or be detrimental to, the
interests of such client, or if such transaction was effected with prior
knowledge of material, non-public information.
Except in particular cases in which the Personal Investment Committee has
determined in advance that proposed transactions would not conflict with the
foregoing policy, the following rules shall govern all transactions (and
recommendations) by all corporate personnel for their own accounts, for their
immediate family's accounts (including accounts of the spouse, minor children,
and adults living in the same household with the officer, director, or employee)
for which they or their spouse have any direct or indirect influence or control,
and any trust of which they are trustee, or any other account in which they have
a beneficial interest or direct or indirect influence or control. The provisions
of the following paragraphs do not necessarily imply that the Personal
Investment Committee will conclude that the transactions or recommendations to
which they
19
<PAGE>
relate are in violation of the foregoing policy, but rather are designed to
indicate the transactions for which PRIOR APPROVAL should be obtained to ensure
that no conflict occurs.
A. PERSONAL TRADING BY ALL EMPLOYEE DIRECTORS, OFFICERS, AND EMPLOYEES
(1.) Neither any security recommended, or proposed to be recommended
to any client for purchase, nor any security purchased or
proposed to be purchased for any client may be purchased by any
corporate personnel if such purchase will interfere in any way
with the orderly purchase of such security by any client.
(2.) Neither any security recommended, or proposed to be recommended
to any client for sale, nor any security sold, or proposed to be
sold, for any client may be sold by any corporate personnel if
such sale will interfere in any way with the orderly sale of such
security by any client.
(3.) No security may be sold after being recommended to any client for
purchase or after being purchased for any client, and no security
may be purchased after being recommended to any client for sale
or after being sold for any client, if the sale or purchase is
effected with a view to making a profit on the anticipated market
action of the security resulting from such recommendation,
purchase or sale.
(4.) In order to prevent even the appearance of a violation of this
rule or a conflict of interest with a client account, YOU SHOULD
REFRAIN FROM TRADING IN THE SEVEN (7) CALENDAR DAYS BEFORE AND
AFTER Jennison trades in that security.
If an employee trades during a blackout period, disgorgement may
be required. For example, if an Employee's trade is pre-approved
and executed and subsequently, within seven days of the
transaction, the Firm trades on behalf of Jennison's clients, the
Jennison Personal Investment Committee shall review the personal
trade in light of firm trading activity and determine on a case
by case basis the appropriate action. If the Personal Investment
Committee finds that a client is disadvantaged by the personal
trade, the trader may be required to REVERSE THE TRADE AND
DISGORGE TO THE FIRM ANY DIFFERENCE DUE TO ANY INCREMENTAL PRICE
ADVANTAGE OVER THE CLIENT'S TRANSACTION.
B. SHORT-TERM TRADING PROFITS
All directors (both employees and non-employees), officers,
and employees of Jennison Associates are prohibited from
profiting in their own accounts and the accounts of their
immediate families (including the spouse, minor children, and
adults living in the same household with the officer, director,
or employee) for which they or their spouse have any direct or
indirect influence or control or any trust of which they are a
trustee, or for any other account in which they have a beneficial
interest or direct or indirect influence or control from the
purchase and
20
<PAGE>
sale, or the sale and purchase of the same or equivalent
securities within 60 calendar days. Any profits realized from the
purchase and sale or the sale and purchase of the same (or
equivalent) securities within the 60 day restriction period shall
be disgorged to the firm, net of taxes.
"Profits realized" shall be calculated consistent with
interpretations under section 16(b) of the Securities Exchange
Act of 1934, as amended, and the regulations thereunder, which
require matching any purchase and sale that occur with in a 60
calendar day period across all accounts over which a Jennison
director, officer or employee has a direct or indirect beneficial
interest (including accounts that hold securities held by members
of a person's immediate family sharing the same household) over
which the person has direct or indirect control or influence
without regard to the order of the purchase or the sale during
the period. As such, a person who sold a security and then
repurchased the same (or equivalent) security would need to
disgorge a profit if matching the purchase and the sale would
result in a profit. Conversely, if matching the purchase and sale
would result in a loss, profits would not be disgorged.
The prohibition on short-term trading profits shall not
apply to trading of index options and index futures contracts and
options on index futures contracts on broad based indices.
However, such transactions remain subject to the pre-clearance
procedures and other applicable procedures. A list of
broad-based indices is provided on Exhibit B.
C. No purchase of a security by any of the corporate personnel shall
be made if the purchase would deprive any of Jennison's clients
of an investment opportunity, after taking into account (in
determining whether such purchase would constitute an investment
opportunity) the client's investments and investment objectives
and whether the opportunity is being offered to corporate
personnel by virtue of his or her position at Jennison.
D. None of the corporate personnel may purchase NEW ISSUES OF EITHER
COMMON STOCK or CONVERTIBLE SECURITIES except in accordance with
item E below. This prohibition does not apply to new issues of
shares of open-end investment companies. All corporate personnel
shall also obtain prior written approval of the Personal
Investment Committee in the form of a completed "Request to Buy
or Sell Securities" form before effecting any purchase of
securities on a `PRIVATE PLACEMENT' basis. Such approval will
take into account, among other factors, whether the investment
opportunity should be reserved for Jennison's clients and
whether the opportunity is being offered to corporate personnel
by virtue of his or her position at Jennison.
E. Subject to the pre-clearance and reporting procedures, corporate
personnel may purchase securities on the date of issuance,
provided that such securities are acquired in the secondary
market. Upon requesting approval of such transactions, employees
must acknowledge that he or she is aware that such request for
approval may not be submitted until AFTER the security has been
issued to the public and is trading at prevailing market prices
in the secondary market. Requests for
21
<PAGE>
approval of such transactions must be accompanied by a copy of
the final prospectus. Additionally, trade confirmations of
executions of such transaction must be received by the Compliance
Department NO LATER THAN THE CLOSE OF BUSINESS ON THE DAY
FOLLOWING EXECUTION OF SUCH TRADE. If such trade confirmation is
not received, the employee may be requested to reverse (subject
to pre-approval) the trade, and any profits or losses avoided
must be disgorged to the firm.
F. Subject to the pre-clearance and reporting procedures, corporate
personnel may effect purchases upon the exercise of rights
issued by an issuer PRO RATA to all holders of a class of its
securities, to the extent that such rights were acquired from
such issuer, and sales of such rights so acquired. In the event
that approval to exercise such rights is denied, subject to
preclearance and reporting procedures, corporate personnel may
obtain permission TO SELL such rights on the last day that such
rights may be traded.
G. Any transactions in index futures contracts and index options,
including those effected on a broad-based index, are subject
to the preclearance and reporting requirements.
H. No director, officer, or employee of Jennison Associates may
profit in their personal securities accounts or the accounts of
their immediate families (including the spouse, minor children,
and adults living in the same household with the officer,
director, or employee) for which they or their spouse have any
direct or indirect influence or control or any trust of which
they are a trustee, or for any other account in which they have a
beneficial interest or direct or indirect influence or control by
short selling or purchasing put options on securities that
represent a position in any portfolios managed by Jennison on
behalf of its clients. Any profits realized from such
transactions shall be disgorged to the Firm, net of taxes. Put
options, short sales and short sales against the box are subject
to the pre-clearance rules.
I. No employee, director, or officer of Jennison Associates may
participate in investment clubs.
J. While participation in employee stock purchase plans and employee
stock option plans need not be pre-approved, copies of the terms
of the plans should be provided to the Compliance Department as
soon as possible so that the application of the various
provisions of the Personal Trading Policy may be determined
(E.G., pre-approval, reporting, short-term trading profits ban).
Corporate personnel must obtain pre-approval for any
discretionary disposition of securities or discretionary exercise
of options acquired pursuant to participation in an employee
stock purchase or employee stock option plan. Nondiscretionary
dispositions of securities or exercise are not subject to
pre-approval. Additionally, corporate personnel should report
holdings of such securities and options on an annual basis.
22
<PAGE>
K. Subject to pre-clearance, long-term investing through direct
stock purchase plans is permitted. The terms of the plan, the
initial investment, and any purchases through automatic debit
must be provided to and approved by the Personal Investment
Committee. Any changes to the original terms of approval, E.G.,
increasing, decreasing, or termination of participation in the
plan, as well as any sales or discretionary purchase of
securities in the plan must be submitted for pre-clearance.
Provided that the automatic monthly purchases have been approved
by the Personal Investment Committee, each automatic monthly
purchase need not be submitted for pre-approval. "Profits
realized" for purposes of applying the ban on short-term trading
profits will be determined by matching the proposed discretionary
purchase or sale transaction against the most recent
discretionary purchase or sale, as applicable, not the most
recent automatic purchase or sale (if applicable). Additionally,
holdings should be disclosed quarterly.
EXCEPTIONS TO THE PERSONAL TRADING POLICY
Notwithstanding the foregoing restrictions, exceptions to certain
provisions (e.g., blackout period, pre-clearance procedures, and short-term
trading profits) of the Personal Trading Policy may be granted on a case by case
basis when no abuse is involved and the equities of the situation strongly
support an exception to the rule.
Investments in the following instruments are not bound to the rules and
restrictions as set forth above and may be made without the approval of the
Investment Compliance Committee: governments, agencies, money markets,
repurchase orders, reverse repurchase orders and open-ended registered
investment companies.
All employees, on a quarterly basis, must sign a statement that they,
during said period, have been in full compliance with all personal and insider
trading rules and regulations set forth within Jennison Associates' Code of
Ethics, Policy Statement on Insider Trading and Personal Trading Policy.
23
<PAGE>
5. PENALTIES FOR VIOLATIONS OF JENNISON ASSOCIATES' PERSONAL TRADING POLICIES
Violations of Jennison's Personal Trading Policy and Procedures, while in
most cases may be inadvertent, must not occur. It is important that every
employee abide by the policies established by the Board of Directors. Penalties
will be assessed in accordance with the schedules set forth below. THESE,
HOWEVER, ARE MINIMUM PENALTIES. THE FIRM RESERVES THE RIGHT TO TAKE ANY OTHER
APPROPRIATE ACTION, INCLUDING TERMINATION.
All violations and penalties imposed will be reported to Jennison's
Compliance Committee on a monthly basis. In addition, the Compliance Committee
will provide the Board of Directors with an annual report which at minimum:
(1) summarizes existing procedures concerning personal investing and
any changes in procedures made during the preceding year;
(2) identifies any violations requiring significant remedial action
during the preceding year; and
(3) identifies any recommended changes in existing restrictions or
procedures based upon Jennison's experience under its policies and
procedures, evolving industry practices, or developments in
applicable laws and regulations.
TYPE OF VIOLATION
A. PENALTIES FOR FAILURE TO SECURE PRE-APPROVAL
The minimum penalties for failure to pre-clear personal securities
transactions include POSSIBLE REVERSAL OF THE TRADE, POSSIBLE DISGORGEMENT OF
PROFITS, AS WELL AS THE IMPOSITION OF ADDITIONAL CASH penalties. Please note
that subsections 2 and 3 have been applied retroactively from its effective
date.
1. FAILURE TO PRE-CLEAR PURCHASE
Depending on the circumstances of the violation, the individual may be
asked to reverse the trade (i.e., the securities must be sold). Any
profits realized from the subsequent sale, net of taxes must be
turned over to the firm. PLEASE NOTE: The sale or reversal of such
trade must be submitted for pre-approval.
2. FAILURE TO PRE-CLEAR SALES THAT RESULT IN LONG-TERM CAPITAL GAINS
Depending on the circumstances of the violation, the firm may require
that profits realized from the sale of securities that are defined as
"long-term capital gains" by Internal Revenue Code (the "IRC") section 1222 and
the rules thereunder, as amended, to be turned over to the firm, subject to the
following maximum amounts:
24
<PAGE>
<TABLE>
<CAPTION>
JALLC POSITION DISGORGEMENT PENALTY
-----------------------------------------------------------------------------------------
<S> <C>
Senior Vice Presidents and above Realized long-term capital gain, net
of taxes, up to $10,000.00
-----------------------------------------------------------------------------------------
Vice Presidents and Assistant Vice Presidents Realized long-term capital gain, net
of taxes, up to $5,000.00
-----------------------------------------------------------------------------------------
All other JALLC Personnel 25% of the realized long-term gain,
irrespective of taxes, up to
$3,000.00
-----------------------------------------------------------------------------------------
</TABLE>
3. FAILURE TO PRE-CLEAR SALES THAT RESULT IN SHORT-TERM CAPITAL GAINS
Depending on the nature of the violation, the firm may require that
all profits realized from sales that result in profits that are defined as
"short-term capital gains" by IRC section 1222 and the rules thereunder, as
amended. Please note, however, any profits that result from violating the ban on
short-term trading profits are addressed in section 5.C. "Penalties for
Violation of Short-Term Trading Profit Rule."
4. ADDITIONAL CASH PENALTIES
<TABLE>
<CAPTION>
VP'S AND ABOVE OTHER JALLC PERSONNEL
<S> <C> <C>
FIRST OFFENSE None/Warning None/Warning
SECOND OFFENSE $1000 $200
THIRD OFFENSE $2000 $300
FOURTH OFFENSE $3000 $400
FIFTH OFFENSE $4000 & Automatic Notification of $500 & Automatic Notification of
the Board of Directors the Board of Directors
</TABLE>
NOTWITHSTANDING THE FOREGOING, JENNISON RESERVES THE RIGHT TO NOTIFY THE BOARD
OF DIRECTORS FOR ANY VIOLATION.
Penalties shall be assessed over a rolling three year period. For example, if
over a three year period (year 1 through year 3), a person had four violations,
two in year 1, and one in each of the following years, the last violation in
year 3 would be considered a fourth offense. However, if in the subsequent year
(year 4), the person only had one violation of the policy, this violation would
be penalized at the third offense level because over the subsequent three year
period (from year 2 through year 4), there were only three violations. Thus, if
a person had no violations over a three year period, a subsequent offense would
be considered a first offense, notwithstanding the fact that the person may have
violated the policy prior to the three year period.
B. FAILURE TO COMPLY WITH RECORDKEEPING REQUIREMENTS
Such violations occur if Jennison does not receive a broker confirmation within
ten (10) business days following the end of the quarter in which a transaction
occurs or if JACC does not routinely receive brokerage statements. Evidence of
written notices to brokers of Jennison's requirement and assistance in resolving
problems will be taken into consideration in determining the appropriateness of
penalties.
25
<PAGE>
<TABLE>
<CAPTION>
VP'S AND ABOVE OTHER JALLC PERSONNEL
<S> <C> <C>
FIRST OFFENSE None/Warning None/Warning
SECOND OFFENSE $200 $50
THIRD OFFENSE $500 $100
FOURTH OFFENSE $600 $200
FIFTH OFFENSE $700 & Automatic Notification $300 & Automatic
of the Board Notification of the Board
</TABLE>
NOTWITHSTANDING THE FOREGOING, JENNISON RESERVES THE RIGHT TO NOTIFY THE BOARD
OF DIRECTORS FOR ANY VIOLATION.
C. PENALTY FOR VIOLATION OF SHORT-TERM TRADING PROFIT RULE
Any profits realized from the purchase and sale or the sale and
purchase of the same (or equivalent) securities within 60 calendar days
shall be disgorged to the firm, net of taxes. "Profits realized" shall be
calculated consistent with interpretations under section 16(b) of the
Securities Exchange Act of 1934, as amended, which requires matching any
purchase and sale that occur with in a 60 calendar day period without
regard to the order of the purchase or the sale during the period. As such,
a person who sold a security and then repurchased the same (or equivalent)
security would need to disgorge a profit if matching the purchase and the
sale would result in a profit. Conversely, if matching the purchase and
sale would result in a loss, profits would not be disgorged.
D. OTHER POLICY INFRINGEMENTS WILL BE DEALT WITH ON A CASE BY CASE BASIS.
PENALTIES WILL BE COMMENSURATE WITH THE SEVERITY OF THE VIOLATION.
Serious violations would include:
A. Failure to abide by the determination of the Personal Committee.
B. Failure to submit pre-approval for securities in which Jennison
actively trades.
E. DISGORGED PROFITS
Profits disgorged to the firm shall be donated to a charitable organization
selected by the firm in the name of the firm. Such funds may be donated to
such organization at such time as the firm determines.
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<PAGE>
EXHIBIT A
COMPLIANCE AND REPORTING OF PERSONAL TRANSACTIONS MATRIX
<TABLE>
<CAPTION>
Investment Sub-Category Required Reportable If
Category/Method ------------ Pre-Approval (Y/N) reportable,
- --------------- (Y/N) ----- minimum
----- reporting
frequency
---------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS Treasury Bills, Notes, Bonds N N N/A
Agency N Y Quarterly
Corporates Y Y Quarterly
MBS N Y Quarterly
ABS N Y Quarterly
CMO's Y Y Quarterly
Municipals N Y Quarterly
Convertibles Y Y Quarterly
STOCKS Common Y Y Quarterly
Preferred Y Y Quarterly
Rights Y Y Quarterly
Warrants Y Y Quarterly
Automatic Dividend Reinvestments N N N/A
Optional Dividend Reinvestments Y Y Quarterly
Direct Stock Purchase Plans with automatic Y Y Quarterly
investments
Employee Stock Purchase/Option Plan Y* Y *
OPEN-END MUTUAL FUNDS
Affiliated Investments: N N N/A
Non-Affiliated Funds N N N/A
CLOSED END FUNDS & UNIT INVESTMENT
TRUSTS
All Affiliated & Non-Affiliated Funds N Y Quarterly
US Funds (including SPDRs, NASDAQ 100 N Y Quarterly
Index Tracking Shares)
Foreign Funds N Y Quarterly
DERIVATIVES Any exchange traded, NASDAQ, or OTC
option or futures contract, including,
but not limited to:
Financial Futures ** Y Quarterly
Commodity Futures N Y Quarterly
Options on Futures ** Y Quarterly
Options on Securities ** Y Quarterly
Non-Broad Based Index Options Y Y Quarterly
Non Broad Based Index Futures Y Y Quarterly
Contracts and Options on Non-Broad
Based Index Futures Contracts
Broad Based Index Options N Y Quarterly
Broad Based Index Futures Contracts N Y Quarterly
and Options on Broad Based Index
Futures Contracts
LIMITED PARTNERSHIPS,
PRIVATE PLACEMENTS, &
PRIVATE INVESTMENTS Y Y Quarterly
VOLUNTARY TENDER OFFERS Y Y Quarterly
</TABLE>
* Pre-approval of sales of securities or exercises of options acquired through
employee stock purchase or employee stock option plans are required. Holdings
are required to be reported annually; transactions subject to pre-approval are
required to be reported quarterly. Pre-approval is not required to participate
in such plans.
** Pre-approval of a personal derivative securities transaction is required if
the underlying security requires pre-approval.
27
<PAGE>
EXHIBIT B
BROAD-BASED INDICES
-----------------------------------------------------
Nikkei 300 Index CI/Euro
-----------------------------------------------------
S&P 100 Close/Amer Index
-----------------------------------------------------
S&P 100 Close/Amer Index
-----------------------------------------------------
S&P 100 Close/Amer Index
-----------------------------------------------------
S&P 500 Index
-----------------------------------------------------
S&P 500 Open/Euro Index
-----------------------------------------------------
S&P 500 Open/Euro Index
-----------------------------------------------------
S&P 500 (Wrap)
-----------------------------------------------------
S&P 500 Open/Euro Index
-----------------------------------------------------
Russell 2000 Open/Euro Index
-----------------------------------------------------
Russell 2000 Open/Euro Index
-----------------------------------------------------
S&P Midcap 400 Open/Euro Index
-----------------------------------------------------
NASDAQ- 100 Open/Euro Index
-----------------------------------------------------
NASDAQ- 100 Open/Euro Index
-----------------------------------------------------
NASDAQ- 100 Open/Euro Index
-----------------------------------------------------
NASDAQ- 100 Open/Euro Index
-----------------------------------------------------
NASDAQ- 100 Open/Euro Index
-----------------------------------------------------
S&P Small Cap 600
-----------------------------------------------------
U.S. Top 100 Sector
-----------------------------------------------------
S&P 500 Long-Term Close
-----------------------------------------------------
Russell 2000 L-T Open./Euro
-----------------------------------------------------
Russell 2000 Long-Term Index
-----------------------------------------------------
28
