<PAGE>
As filed with the Securities and Exchange Commission on June 19, 1998
Securities Act Registration No. 333-50373
Investment Company Act Registration No. 811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [_]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
(Check appropriate box or boxes)
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PRUDENTIAL DEVELOPING MARKETS 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) 367-7530
S. JANE ROSE, 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
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REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
TITLE OF SECURITIES BEING REGISTERED.. Shares of Beneficial
Interest, $.001 Par Value
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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<C> <S> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information...... Fund Expenses; Financial
Highlights; How the Fund
Calculates Performance
Item 4. General Description of Registrant.... Cover Page; Fund Highlights;
How the Fund Invests; General
Information
Item 5. Management of Fund................... Financial Highlights; How the
Fund is Managed; General
Information; Shareholder Guide
Item 5A. Management's Discussion of Fund Not required
Performance..........................
Item 6. Capital Stock and Other Securities... Taxes, Dividends and
Distributions; General
Information; Shareholder Guide
Item 7. Purchase of Securities Being Offered. Shareholder Guide; How the
Fund Values its Shares; How
the Fund is Managed
Item 8. Redemption or Repurchase............. Shareholder Guide; How the
Fund Values its Shares; How
the Fund is Managed
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... Cover Page
Item 13. Investment Objectives and Policies... Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund............... Trustees and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders Trustees and Officers
of Securities........................
Item 16. Investment Advisory and Other Manager; Distributor;
Services............................. Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Portfolio Transactions and
Practices............................ Brokerage
Item 18. Capital Stock and Other Securities... Not Applicable
Item 19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered............. Fund Shares; Shareholder
Investment Account; Net Asset
Value
Item 20. Tax Status........................... Taxes, Dividends and
Distributions
Item 21. Underwriters......................... Distributor
Item 22. Calculation of Performance Data...... Performance Information
Item 23. Financial Statements................. Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
</TABLE>
<PAGE>
Prudential Developing Markets Equity Fund
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PROSPECTUS DATED JUNE 23, 1998
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Prudential Developing Markets Equity Fund (the Fund) is a series of Prudential
Developing Markets Fund, an open-end, diversified, management investment
company. The Fund's investment objective is long-term growth of capital. It
seeks to achieve this objective by investing primarily in equity related
securities of companies whose principal activities are in developing markets
throughout the world. "Developing markets" include countries or markets that
are defined as emerging or developing by the International Finance
Corporation, the International Bank for Reconstruction and Development (World
Bank) or the United Nations or its authorities. See "How the Fund Invests--
Investment Objective and Policies." Under normal circumstances, the Fund
intends to invest at least 65% of its total assets in such securities in at
least the three following regions: Europe, Asia and Latin America. The Fund
may also invest in equity related securities of other companies and debt
securities, engage in various derivatives transactions, including options on
equity securities, stock indices, foreign currencies and futures contracts on
foreign currencies, and may purchase and sell futures contracts on foreign
currencies, groups of currencies and stock indices so as to hedge its
portfolio and to attempt to enhance return. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund Invests--
Investment Objective and Policies." The Fund's address is Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its telephone
number is (800) 225-1852.
The Fund is not intended to constitute a complete investment program. Because
of its objective and policies, including its foreign orientation and its
emphasis on developing markets, the Fund may be considered of a speculative
nature and subject to greater investment risks than are assumed by certain
other investment companies that invest solely in securities of U.S. issuers or
that do not emphasize investments in regions with developing or emerging
economies. See "How the Fund Invests--Investment Objective and Policies--
Special Considerations and Risks of Investing in Developing Market
Securities."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated June 23, 1998, which information is
incorporated herein by reference (is legally considered part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in the Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL DEVELOPING MARKETS EQUITY FUND?
Prudential Developing Markets Equity Fund is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is a series of
Prudential Developing Markets Fund, an open-end, diversified, management
investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity related securities of
companies whose principal activities are in developing markets. "Developing
markets" include countries or markets that are defined as emerging or
developing by the International Finance Corporation, the International Bank
for Reconstruction and Development (World Bank) or the United Nations or its
authorities. There can be no assurance that the Fund's investment objective
will be achieved. See "How the Fund Invests--Investment Objective and
Policies" at page 5.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
The Fund invests primarily in equity related securities of companies whose
principal activities are in developing markets. Unlike a mutual fund that
invests in more established economic markets, the Fund's concentration on
developing markets can result in more pronounced risks and rewards based upon
economic conditions that impact these markets more or less than other global
regions. Foreign securities in general involve certain risks and
considerations not typically associated with investments in U.S. Government
securities and securities of domestic companies, including political or
economic instability in the country of the issuer, the difficulty of
predicting international trade patterns, the possibility of imposition of
exchange controls and the risk of currency fluctuations. See "How the Fund
Invests--Special Considerations and Risks of Investing in Developing Market
Securities" at page 7. In addition, the Fund may engage in various hedging and
return enhancement strategies, including the use of derivatives transactions.
These activities may be considered speculative and may result in higher risks
and costs to the Fund. See "How the Fund Invests--Hedging and Return
Enhancement Strategies" at page 8. As with an investment in any mutual fund,
an investment in this Fund can decrease in value and you can lose money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
1.25% of the Fund's average daily net assets. As of May 31, 1998, PIFM served
as manager or administrator to 67 investment companies, including 45 mutual
funds, with aggregate assets of approximately $65 billion. The Prudential
Investment Corporation (PIC), doing business as Prudential Investments (PI,
the Subadviser or the investment adviser), furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PIFM. See "How the Fund is Managed--Manager" at page 14.
WHO DISTRIBUTES THE FUND'S SHARES?
Until approximately July 1, 1998, Prudential Securities Incorporated
(Prudential Securities or the Distributor), a major securities underwriter and
securities and commodities broker, will act as the Distributor of the Fund's
Class A, Class B, Class C and Class Z shares. On or about July 1, 1998,
Prudential Investment Management Services LLC (the Distributor) will serve as
the distributor of the Fund's shares. The Distributor is paid a distribution
and service fee with respect to Class A shares which is currently being
charged at the annual rate of .25 of 1% of the average daily net assets of the
Class A shares and is paid a distribution and service fee with respect to
Class B and Class C shares at the annual rate of 1% of
2
<PAGE>
the average daily net assets of each of the Class B and Class C shares. The
Distributor incurs the expenses of distributing the Fund's Class Z shares under
a Distribution Agreement with the Fund, none of which is reimbursed or paid for
by the Fund. See "How the Fund is Managed--Distributor" at page 15.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is $100
for Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 21 and "Shareholder
Guide--Shareholder Services" at page 31.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. See "How the Fund
Values its Shares" at page 17 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 21.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares through this Prospectus:
. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
. Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining from
5% to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing distribution-
related expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are subject
to lower ongoing distribution-related expenses)
approximately seven years after purchase.
. Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to higher
ongoing distribution-related expenses than Class A shares
but do not convert to another class.
.Class Z Shares: Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not subject
to any ongoing service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 22.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 26. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 18.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 5% None None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends.............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption
proceeds, whichever is
lower)................. None 5% during the 1% on redemp- None
first year, de- tions made
creasing by 1% within one
annually to 1% year of pur-
in the fifth chase
and sixth years
and 0% the sev-
enth year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
average net assets) -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Management Fees ....... 1.25% 1.25% 1.25% 1.25%
12b-1 Fees+............ .25++ 1.00 1.00 None
Other Expenses......... .50 .50 .50 .50%
----- ----- ----- -----
Total Fund Operating
Expenses............... 2.00%++ 2.75% 2.75% 1.75%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
EXAMPLE ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
Class A....................................................... $69 $110
Class B....................................................... $78 $115
Class C....................................................... $38 $ 85
Class Z ...................................................... $18 $ 55
You would pay the following expenses on the same investment,
assuming no redemption:
Class A....................................................... $69 $110
Class B....................................................... $28 $ 85
Class C....................................................... $28 $ 85
Class Z ...................................................... $18 $ 55
</TABLE>
The above example is based on anticipated data for the Fund's fiscal year
ending May 31, 1999. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes estimated operating
expenses of the Fund for the current fiscal year, which ends May 31, 1999, such
as Trustees' and professional fees, registration fees, reports to shareholders,
transfer agency and custodian (domestic and foreign) fees and miscellaneous
fees, but excludes foreign withholding taxes.
- ------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay up to an annual rate of .30 of 1% of average daily net assets of the
Class A shares, the Distributor has agreed to limit its distribution fee
with respect to Class A shares of the Fund to .25 of 1% of the average daily
net asset value of the Class A shares for the fiscal year ending May 31,
1999. Total operating expenses of Class A shares without such limitation
would be 2.05%. See "How the Fund is Managed--Distributor."
4
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN EQUITY
RELATED SECURITIES OF COMPANIES WHOSE PRINCIPAL ACTIVITIES ARE IN DEVELOPING
MARKETS THROUGHOUT THE WORLD. UNDER NORMAL CIRCUMSTANCES, THE FUND WILL INVEST
AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY RELATED SECURITIES OF DEVELOPING
MARKETS ISSUERS IN AT LEAST THE THREE FOLLOWING REGIONS: EUROPE, ASIA AND
LATIN AMERICA. THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE
WILL BE ACHIEVED. See "Investment Objective and Policies" in the Statement of
Additional Information.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF TRUSTEES WITHOUT SHAREHOLDER
APPROVAL.
For purposes of this Prospectus, "securities of developing market issuers"
and "developing market securities" are defined as: (i) securities of companies
the principal securities trading market for which is located in a developing
market country; (ii) securities, traded in any market, of companies that
derive 50% or more of their total revenue from either goods or services
produced in a developing market country or sales made in a developing market
country; (iii) securities of companies organized under the laws of, and with a
principal office in, a developing market country; or (iv) securities issued or
guaranteed by the government of a developing market country, its agencies or
instrumentalities, political subdivisions or the central bank of such a
country. As used in this Prospectus, "developing markets" include countries or
markets that are defined as emerging or developing by the International
Finance Corporation, the International Bank for Reconstruction and Development
(World Bank) or the United Nations or its authorities. These countries
generally include every country in the world except Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Italy,
Japan, Kuwait, Luxembourg, the Netherlands, New Zealand, Norway, Spain,
Sweden, Switzerland, the United Kingdom, and the United States. "Equity
related securities," as used in this Prospectus, generally refers to common
stock, preferred stock, warrants or rights to purchase or to subscribe to such
securities, as well as sponsored or unsponsored American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and Global Depositary Receipts
(GDRs and, collectively with ADRs and EDRs, Depositary Receipts), convertible
securities, trust certificates, limited partnership interests and equity
participations. See "Other Investments and Policies--Depositary Receipts."
Determinations as to the eligibility of any security to be included in the
Fund's portfolio will be made by the Fund's investment adviser, under the
supervision of the Fund's Manager and Board of Trustees, based upon publicly
available information and inquiries made to the issuer of such security.
As with an investment in any mutual fund, an investment in this Fund can
decrease in value and you can lose money.
DEVELOPING MARKET COMPANIES
The Fund's investment adviser intends to invest in equity related securities
of developing market issuers in countries in which it believes investing is
feasible and does not involve undue political risk. The issuers considered by
the investment adviser may have varying levels of net worth and may include
companies with small market capitalizations whose securities may be more
volatile than securities offered by companies with greater market
capitalizations or with higher levels of net worth.
In analyzing companies for investment, the investment adviser ordinarily
looks for one or more of the following characteristics: prospects for above-
average earnings per share growth; high return on invested capital; healthy
balance sheets; sound financial and accounting policies; overall financial
strength; strong competitive advantages; effective research and product
development and marketing; efficient service; pricing flexibility; strength of
management; and general operating
5
<PAGE>
characteristics which will enable the companies to compete successfully in
their marketplace--all in relation to the prevailing prices of the securities
of such companies.
THERE ARE CERTAIN RISKS ASSOCIATED WITH INVESTING IN SECURITIES OF
DEVELOPING MARKET COMPANIES IN GENERAL AND SMALLER DEVELOPING MARKET COMPANIES
IN PARTICULAR. INSOFAR AS THE FUND INVESTS IN THE SECURITIES OF SMALLER
COMPANIES, THERE ARE RISKS THAT THE MARKET PRICES OF SUCH SECURITIES WILL BE
MORE VOLATILE THAN THOSE OF LARGER COMPANIES. BECAUSE SMALLER COMPANIES
USUALLY HAVE FEWER SHARES OUTSTANDING THAN LARGER COMPANIES, IT MAY BE MORE
DIFFICULT FOR THE FUND TO BUY OR SELL SIGNIFICANT AMOUNTS OF SUCH SHARES
WITHOUT AN UNFAVORABLE IMPACT ON PREVAILING MARKET PRICES. THERE IS TYPICALLY
LESS PUBLICLY AVAILABLE INFORMATION CONCERNING SMALLER COMPANIES THAN FOR
LARGER, MORE ESTABLISHED ONES. BECAUSE SMALLER COMPANIES TYPICALLY HAVE
SMALLER PRODUCT LINES AND COMMAND A SMALLER MARKET SHARE THAN DO LARGER
COMPANIES, SMALLER COMPANIES MAY BE MORE VULNERABLE TO FLUCTUATIONS IN THE
ECONOMIC CYCLE. See "Special Considerations and Risks of Investing in
Developing Market Securities" below.
GENERAL
THE FUND MAY INVEST IN SECURITIES NOT LISTED ON SECURITIES EXCHANGES. These
securities will generally have an established market (such as the over-the-
counter market), the depth and liquidity of which may vary from time to time
and from security to security. The Fund may also hold up to 15% of its net
assets (determined at the time of investment) in restricted securities or
other securities that have a limited market. See "Other Investments and
Policies--Illiquid Securities" below.
The Fund intends to invest primarily in equity related securities of
companies whose principal activities are in developing markets throughout the
world. Developing market countries may have relatively unstable governments,
economies based only on a few industries and securities markets that trade a
limited number of securities. Securities of issuers located in these countries
tend to have volatile prices and offer the potential for substantial loss as
well as gain. In addition, these securities may be less liquid than
investments in securities of issuers whose principal activities are in more
established markets as a result of inadequate trading volume or restrictions
on trading imposed by the governments or securities exchanges of such
countries. See "Special Considerations and Risks of Investing in Developing
Market Securities" below.
THE FUND INTENDS TO INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
RELATED SECURITIES OF DEVELOPING MARKET ISSUERS IN AT LEAST THE THREE
FOLLOWING REGIONS: EUROPE, ASIA AND LATIN AMERICA. UNDER NORMAL CIRCUMSTANCES,
THE REMAINDER OF THE FUND'S INVESTMENTS MAY BE IN OTHER SECURITIES OR
INVESTMENT VEHICLES, INCLUDING EQUITY RELATED SECURITIES OF OTHER COMPANIES
AND DEBT SECURITIES (INCLUDING MONEY MARKET INSTRUMENTS) OF FOREIGN AND
DOMESTIC COMPANIES, OR THE FUND MAY ENGAGE IN VARIOUS DERIVATIVES
TRANSACTIONS, INCLUDING OPTIONS ON EQUITY SECURITIES, STOCK INDICES, FOREIGN
CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES, AND MAY PURCHASE AND
SELL FUTURES CONTRACTS ON FOREIGN CURRENCIES, GROUPS OF CURRENCIES AND STOCK
INDICES SO AS TO HEDGE ITS PORTFOLIO AND TO ATTEMPT TO ENHANCE RETURN. IN
ADDITION, THE FUND MAY (I) PURCHASE SECURITIES ON A WHEN-ISSUED OR DELAYED
DELIVERY BASIS, (II) MAKE SHORT SALES AGAINST-THE-BOX AND (III) ENTER INTO
REPURCHASE AGREEMENTS. THE FUND MAY FROM TIME TO TIME LEND ITS PORTFOLIO
SECURITIES TO BROKERS OR DEALERS, BANKS OR OTHER RECOGNIZED INSTITUTIONAL
BORROWERS OF SECURITIES AND MAY INVEST TO A LIMITED EXTENT IN SECURITIES OF
COMPANIES THAT HAVE BEEN IN EXISTENCE FOR LESS THAN THREE YEARS, IN SECURITIES
FOR WHICH MARKET QUOTATIONS ARE NOT READILY AVAILABLE AND IN SECURITIES OF
OTHER REGISTERED INVESTMENT COMPANIES. SEE "INVESTMENT RESTRICTIONS" IN THE
STATEMENT OF ADDITIONAL INFORMATION.
When conditions dictate a temporary defensive strategy (which during periods
of market volatility could be for an extended period of time), the Fund may
invest in money market instruments (including repurchase agreements maturing
in seven days or less) without limit. The Fund will only invest in money
market instruments that are rated, or are issued by companies that have
outstanding debt securities rated, at least C by S&P or Moody's, commercial
paper rated at least A-2 or Prime-2 by S&P or Moody's, respectively, or in
unrated securities that the Fund's investment adviser has determined to be of
comparable quality.
6
<PAGE>
SPECIAL CONSIDERATIONS AND RISKS OF INVESTING IN DEVELOPING MARKET SECURITIES
DEVELOPING MARKET SECURITIES INVOLVE CERTAIN RISKS WHICH SHOULD BE
CONSIDERED CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL
OR ECONOMIC INSTABILITY IN THE COUNTRIES IN WHICH THE ISSUER'S PRINCIPAL
ACTIVITIES TAKE PLACE, THE DIFFICULTY OF PREDICTING INTERNATIONAL TRADE
PATTERNS, THE POSSIBILITY OF IMPOSITION OF EXCHANGE CONTROLS AND THE RISK OF
CURRENCY FLUCTUATIONS. Such securities may be, and in the recent past have
been, subject to greater fluctuations in price than securities issued by U.S.
corporations; securities issued or guaranteed by the U.S. Government, its
instrumentalities or agencies; or securities of companies in other markets
that are considered developed. In addition, there may be less publicly
available information about a developing market company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies in developing markets than
in the United States and an increased risk, therefore, of uninsured loss due
to lost, stolen or counterfeit stock certificates. Certain countries may have
only one securities depository which, if the Fund decides to invest in
securities that are located at such depository, may result in risks to the
Fund that cannot be avoided. There is a possibility of expropriation,
nationalization, confiscatory taxation or diplomatic developments which could
affect investment in those countries. In the event of a default on debt
obligations of developing market issuers, it may be more difficult for the
Fund to obtain or to enforce a judgment against the issuers of such
securities. The Fund may encounter difficulties or be unable to vote proxies,
exercise shareholder rights, pursue legal remedies and obtain judgments in
foreign courts. Also, some countries may withhold portions of income and
dividends at the source. Finally, developing markets may have increased risks
associated with clearance and settlement as well as increased costs for
commissions, custodial services and other items associated with making an
investment. Delays in settlement could result in periods of uninvested assets,
missed investment opportunities or losses to the Fund.
ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN EQUITY RELATED SECURITIES,
IT MAY INVEST FROM TIME TO TIME IN DEBT SECURITIES OF DEVELOPING MARKET
ISSUERS. In many instances, debt securities of developing market issuers may
provide higher yields than securities of domestic issuers which have similar
maturities and are of similar quality. Under certain market conditions these
investments may be less liquid than the securities of U.S. corporations and
are certainly less liquid than securities issued or guaranteed by the U.S.
Government, its instrumentalities or agencies.
Shareholders should be aware that investing in the equity and fixed-income
markets of developing countries involves exposure to economies that are
generally less diverse and mature, and political systems which can be expected
to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing market countries have been
more volatile than the markets of developed countries. Many developing markets
countries have economies based on only a few commodities or industries and
securities markets that trade infrequently or with low levels of volume.
Additionally, some developing markets countries may also restrict the extent
to which foreign investors may invest in their securities markets or in a
particular company.
IF A SECURITY IS DENOMINATED IN A FOREIGN CURRENCY, IT WILL BE AFFECTED BY
CHANGES IN CURRENCY EXCHANGE RATES AND IN EXCHANGE CONTROL REGULATIONS, AND
COSTS WILL BE INCURRED IN CONNECTION WITH CONVERSIONS BETWEEN CURRENCIES. IN
ADDITION, IF A SECURITY IS DENOMINATED IN U.S. DOLLARS, THE ABILITY OF THE
ISSUER TO REPAY MAY BE SUBSTANTIALLY IMPAIRED BY DEVALUATION AND THE COUNTRY'S
AVAILABLE FOREIGN EXCHANGE RESERVES. 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
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in order to pay such expenses in U.S. dollars will be greater than the amount
of such currency at the time they were incurred. The Fund may, but need not,
enter into futures contracts on foreign currencies, forward foreign currency
exchange contracts and options on foreign currencies 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 interest or 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.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING PURCHASING
AND SELLING DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO
ATTEMPT TO ENHANCE RETURN, BUT NOT FOR SPECULATION. THESE STRATEGIES CURRENTLY
INCLUDE THE USE OF OPTIONS, FORWARD CURRENCY EXCHANGE CONTRACTS AND FUTURES
CONTRACTS AND OPTIONS THEREON. The Fund, and thus investors, may lose money
through any unsuccessful use of these strategies. The Fund's ability to use
these strategies may be limited by market conditions, regulatory limits and
tax considerations and there can be no assurance that any of these strategies
will succeed. See "Investment Objective and Policies" and "Taxes, Dividends
and Distributions" in the Statement of Additional Information. New financial
products and risk management techniques continue to be developed, and the Fund
may use these new investments and techniques to the extent consistent with its
investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, FINANCIAL INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR
FOREIGN SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO
ENHANCE RETURN OR TO HEDGE THE FUND'S PORTFOLIO. These options will be on
equity securities, financial indices (e.g., the S&P 500) and foreign
currencies. The Fund may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of 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 (or currencies) it intends to purchase.
The Fund may also purchase put and call options to offset previously written
put and call options of the same series. See "Investment Objective and
Policies--Options Transactions" in the Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT, FOR A SPECIFIED PERIOD OF TIME, TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE
PRICE). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver to the purchaser,
depending upon the terms of the option contract, the underlying securities or
currency upon receipt of the exercise price or a specified amount of cash.
When the Fund writes a call option, it gives up the potential for gain on the
underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price or deliver a specified amount of cash to the purchaser. The
Fund might, therefore, be obligated to purchase the underlying securities or
currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. A written option is covered if,
as long as the Fund is obligated under the option, (i) it owns an offsetting
position in the underlying security or currency or (ii) it maintains in a
segregated account cash or other liquid assets in an amount equal to or
greater than its obligation under the option. The value of covered options
that the Fund may write is limited to 35% of its total assets. When the Fund
writes a "covered" option as described in (i) in the first sentence of this
paragraph, its losses are limited because it owns an offsetting position of
the underlying security or currency. When the Fund otherwise writes an option,
its losses are potentially unlimited. See "Investment Objective and Policies--
Options Transactions" in the Statement of Additional Information.
OPTIONS ON SECURITIES INDICES ARE SIMILAR TO OPTIONS ON EQUITY SECURITIES,
EXCEPT THAT THE EXERCISE OF SECURITIES INDEX OPTIONS REQUIRES CASH PAYMENTS
AND DOES NOT INVOLVE THE ACTUAL PURCHASE OR SALE OF SECURITIES. Rather than
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the right to take or make delivery of the securities at a specified price, an
option on a securities index gives the holder the right, in return for a
premium paid, to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of an index option, in return for the
premium, is obligated to pay the amount of cash due upon exercise of the
option.
The Fund may purchase and sell put and call options on securities indices
for hedging against a decline in the value of the securities owned by the Fund
or against an increase in the market value of the type of securities in which
the Fund may invest. Securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security. Purchasing or selling
securities index options is subject to the risk that the value of its
portfolio securities may not change as much as or more than the index because
the Fund's investments generally will not match the composition of the index.
See "Investment Objective and Policies--Risks of Options on Indices" in the
Statement of Additional Information.
OVER-THE-COUNTER OPTIONS. THE FUND MAY ALSO PURCHASE AND WRITE (I.E., SELL)
PUT AND CALL OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES IN THE
OVER-THE-COUNTER MARKET (OTC OPTIONS). Unlike exchange-traded options, OTC
options are contracts between the Fund and its counterparty without the
interposition of any clearing organization. Thus, the value of an OTC option
is particularly dependent on the financial viability of the OTC counterparty.
The Fund's ability to purchase and write OTC options may be limited by market
conditions, regulatory limits and tax considerations. There are certain risks
associated with investments in OTC options. See "Investment Objective and
Policies--Special Risks of OTC Options" in the Statement of Additional
Information.
FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract, at a price set
on the date of the contract.
THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a currency bearing a substantial correlation to
the value of that currency (a cross hedge). Although there are no limits on
the number of forward contracts which the Fund may enter into, the Fund may
not position hedge (including cross hedges) with respect to a particular
currency for an amount greater than the aggregate market value (determined at
the time of making any sale of the foreign currency) of the securities held in
its portfolio denominated or quoted in, or currently convertible into, such
currency. See "Investment Objective and Policies--Risks Related to Forward
Currency Exchange Contracts" in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR
CERTAIN HEDGING AND RISK MANAGEMENT PURPOSES AND TO ATTEMPT TO ENHANCE RETURN
IN ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION.
The Fund, and thus investors, may lose money through any unsuccessful use of
these strategies. These futures contracts and options thereon will be on
financial indices and foreign currencies or groups of foreign currencies. A
financial futures contract is an agreement to purchase or sell an agreed
amount of securities or currency at a set price for delivery in the future. A
stock index futures contract is an agreement in which one party agrees to
deliver to another amount of cash equal to a specific
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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 is made.
The Fund may purchase and sell stock index futures or related options as a
hedge against changes in market conditions.
UNDER REGULATIONS OF THE COMMODITY EXCHANGE ACT, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT ARE EXEMPT FROM THE DEFINITION OF
"COMMODITY POOL OPERATOR," SUBJECT TO COMPLIANCE WITH CERTAIN CONDITIONS. THE
EXEMPTION IS CONDITIONED UPON THE FUND'S PURCHASING AND SELLING FUTURES
CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING TRANSACTIONS, EXCEPT THAT
THE FUND MAY PURCHASE AND SELL FUTURES CONTRACTS AND OPTIONS THEREON FOR ANY
OTHER PURPOSE TO THE EXTENT THAT THE AGGREGATE INITIAL MARGIN AND OPTION
PREMIUMS DO NOT EXCEED 5% OF THE LIQUIDATION VALUE OF THE FUND'S TOTAL ASSETS.
THE VALUE OF ALL FUTURES CONTRACTS SOLD WILL NOT EXCEED 35% OF THE FUND'S
TOTAL ASSETS.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE USED IN SELECTING
PORTFOLIO SECURITIES. The correlation between movements in the price of a
futures contract and movements in the index or price of the currency being
hedged is imperfect, and there is a risk that the value of the index or
currency being hedged may increase or decrease at a greater rate than the
related futures contract, resulting in losses to the Fund. Certain futures
exchanges or boards of trade have established daily limits on the amount that
the price of futures contracts or options thereon may vary, either up or down,
from the previous day's settlement price. These daily limits may restrict the
Fund's ability to purchase or sell certain futures contracts or options
thereon on any particular day.
The Fund's ability to enter into or close out futures contracts and options
thereof is limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. THE FUND, AND THUS
INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. If
the investment adviser's predictions of movements in the direction of
securities, foreign currencies and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than
if such strategies were not used. Risks inherent in the use of options,
foreign currency exchange contracts and futures contracts and options thereon
include (1) dependence on the investment adviser's ability to predict
correctly movements in the direction of interest rates, securities prices and
currency markets; (2) imperfect correlation between the price of options and
futures contracts and options thereon and movements in the prices of the
securities or currencies being hedged; (3) the fact that the skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for the Fund to sell a portfolio security at a disadvantageous time, due to
the need for the Fund to maintain "cover" or to segregate securities in
connection with hedging transactions. See "Taxes, Dividends & Distributions"
in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
DEPOSITARY RECEIPTS
ADRs are depositary receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued
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by either a foreign or a U.S. corporation. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of
a sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts. Depositary receipts also involve the risks of other
investments in foreign securities, as discussed above. For purposes of the
Fund's investment policies, the Fund's investments in depositary receipts will
be deemed to be investments in the underlying securities.
CONVERTIBLE SECURITIES
A convertible security is a bond or preferred stock which may be converted
at a stated price within a specified period of time into a certain quantity of
the common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a similar nonconvertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
dependent upon a market price advance in the convertible security's underlying
common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Convertible debt securities in which the Fund may invest must comply with
the quality restrictions for debt securities described below. See "Other
Investments--Debt Securities Including Investment Grade Securities and High
Yield Debt Securities (Junk Bonds)."
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place 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 maintain, in a segregated account of
the Fund, cash or other liquid assets, marked-to-market daily, 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. See "Investment Objective and
Policies--When-Issued or Delayed Delivery Securities" in the Statement of
Additional Information.
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REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of a
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 participates in a
joint repurchase account with other investment companies managed by Prudential
Investments Fund Management LLC pursuant to an order of the Securities and
Exchange Commission (SEC). See "Investment Objective and Policies--Repurchase
Agreements" in the Statement of Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets in a segregated
account or secures an irrevocable letter of credit in favor of the Fund in an
amount equal to at least 100%, determined daily, of the market value of the
securities loaned pursuant to applicable regulations. During the time
portfolio securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividend or interest paid on such securities and the Fund
may invest the cash collateral and earn additional income, or it may receive
an agreed upon amount of interest income from the borrower. As an operating
policy that may be changed without shareholder approval, the Fund will not
lend more than 30% of the value of its total assets. The Fund may pay
reasonable administration and custodial fees in connection with a loan. See
"Investment Objective and Policies--Lending of Portfolio Securities" in the
Statement of Additional Information.
INVESTMENT FUNDS
Certain developing markets are closed in whole or in part to equity
investments by foreigners except through specifically authorized investment
funds. Securities of other investment companies may be acquired by the Fund to
the extent permitted by the Investment Company Act. As a shareholder in an
investment fund, the Fund would bear not only its share of that investment
fund's expenses, including its investment advisory fee and other operating
fees, but also its own investment advisory fee and other operating expenses.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets (determined at the time of the
transaction) in illiquid securities, including repurchase agreements which
have a maturity of longer than seven days, securities with legal or
contractual restrictions on resale (restricted securities) and securities that
are not readily marketable in securities markets either within or outside of
the United States. Restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933, as amended (the Securities Act), and
privately placed commercial paper that have a readily available market are not
considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of 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. See "Investment Objective and Policies--Illiquid
Securities" in the Statement of Additional Information. Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable notice
period.
The staff of the SEC has taken the position that purchased OTC Options and
the assets used as "cover" for written OTC Options are illiquid securities
unless the Fund and the counterparty have provided for the Fund, at the Fund's
election, to unwind the OTC Option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the
Fund to treat the assets used as "cover" as "liquid."
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DEBT SECURITIES INCLUDING INVESTMENT GRADE SECURITIES AND HIGH YIELD DEBT
SECURITIES (JUNK BONDS)
The Fund may hold up to 35% of its total assets in debt securities rated at
least C by S&P or Moody's or, if unrated, determined to be of comparable
quality by the investment adviser. As an operating policy, which may be
changed without shareholder approval, the Fund will not invest more than 10%
of its total assets in debt securities rated BBB or lower by S&P or Baa or
lower by Moody's or, if unrated, debt securities that the Fund's investment
adviser has determined to be of comparable quality. Subsequent to its purchase
by the Fund, a security may be assigned a lower rating or cease to be rated.
Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in
determining whether the Fund should continue to hold the security in its
portfolio. Securities rated Baa by Moody's, although considered to be
investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Bonds rated C by S&P are of the lowest
quality and may be used when the issuer has filed a bankruptcy petition, but
debt payments are still being made. Moody's lowest rating is C, which is
applied to bonds that have extremely poor prospects of ever attaining any real
investment standing. See "Description of Security Ratings" in Appendix I to
the Statement of Additional Information.
The Fund may also invest in certain debt obligations customarily referred to
as "Brady Bonds," which are created in connection with debt restructuring
through the exchange of existing commercial bank loans to sovereign entities
for new obligations. Investments in Brady Bonds are generally considered
speculative and many Brady Bonds are rated below investment grade. As noted
above, the Fund does not currently intend to invest more than 10% of its
assets in debt securities, including Brady Bonds, rated lower than Baa by
Moody's or BBB by S&P. See "Investment Objective and Policies--Brady Bonds"
and "Description of Security Ratings" in Appendix I to the Statement of
Additional Information.
Lower-rated debt securities, including securities rated from BB to C by S&P
or Ba to C by Moody's or, if unrated, of comparable quality in the opinion of
the investment adviser, will usually offer higher yields than higher-rated
securities. However, there is more risk associated with lower-rated debt
securities due to the reduced creditworthiness and increased likelihood of
default that these securities carry. Lower-rated debt securities generally
tend to reflect short-term corporate and market developments to a greater
extent than higher-rated securities that react primarily to fluctuations in
the general level of interest rates. In addition, lower-rated debt securities
tend to demonstrate greater sensitivity to significant increases or decreases
in the level of interest rates. Also, since there may be fewer investors in
lower-rated debt securities, it may be more difficult to dispose of such
securities at times advantageous to the Fund.
The risk of loss due to default by the issuer of lower-rated securities is
significantly greater because such securities are usually unsecured and are
often subordinated to other obligations of the issuer. During an economic
downturn or a sustained period of rising interest rates, issuers of lower-
rated debt securities that are either highly leveraged companies or companies
in cyclically sensitive industries may experience deteriorated cash flow or
other financial stress that impairs the ability of the issuer to meet its
obligation to pay principal and interest to bondholders on a timely basis.
When the issuer of a lower-rated debt security that is included in the Fund's
investment portfolio is unable to honor its payment obligations to
bondholders, the Fund's net asset value may be adversely affected. In
addition, the Fund may incur additional expenses if it seeks recovery upon a
default in the payment of principal and interest on a debt security.
BORROWING
The Fund may borrow an amount equal to no more than 33 1/3% of the value of
its total assets (computed at the time the loan is made) for temporary,
extraordinary or emergency purposes or for the clearance of transactions.
Asset coverage for borrowings must be maintained at 300% at all times. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If
the Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. This is the speculative factor known
as "leverage." The Fund does not currently intend to borrow money in order to
invest in securities. See "Investment Restrictions" in the Statement of
Additional Information.
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PORTFOLIO TURNOVER
As a result of the Fund's investment policies, the portfolio turnover rate
is not expected to exceed 250%. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the
average monthly value of the Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. High portfolio
turnover (100% or more) may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information. In addition, high portfolio turnover may result in
increased short-term capital gains, which, when distributed to shareholders,
are treated as ordinary income. See "Taxes, Dividends and Distributions."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
1.25% OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM IS ORGANIZED IN NEW YORK AS
A LIMITED LIABILITY COMPANY.
PIFM may from time to time waive its management fee (or a portion thereof)
and subsidize operating expenses of the Fund. See "Fund Expenses." The Fund is
not required to reimburse PIFM for such fee waiver or expense subsidy. Fee
waivers and expense subsidies will increase the Fund's total return. See "How
the Fund Calculates Performance."
As of May 31, 1998, PIFM served as the manager to 45 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $65 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE
SUBADVISER OR THE INVESTMENT ADVISER), PI FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY
PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH
SERVICES. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises PI's
performance of such services.
The Fund's portfolio has been managed since its inception by a team of
investment professionals led by Maria Elena Carrion. Ms. Carrion oversees the
investment process and manages the overall regional and country allocations of
the
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Fund. Ms. Carrion has been employed by PIC since 1997. Prior to joining PIC,
Ms. Carrion was employed by Bankers Trust Company as a portfolio manager
beginning in April 1993. From June 1991 to April 1993, she was employed by
Latin American Securities (London). Ms. Carrion is a Chartered Financial
Analyst.
PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND, UNTIL APPROXIMATELY
JULY 1, 1998, SERVES AS THE DISTRIBUTOR OF THE SHARES OF THE FUND. IT IS AN
INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL. ON OR ABOUT JULY 1, 1998,
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), THREE GATEWAY
CENTER, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, WILL BEGIN ACTING
AS THE FUND'S DISTRIBUTOR. PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC IS A
LIMITED LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE
AND IS A WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING
THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor also incurs
the expenses of distributing the Fund's Class Z shares under the Distribution
Agreement, none of which is reimbursed by or paid for by the Fund. These
expenses include commissions and account servicing fees paid to, or on account
of, financial advisers of Prudential Securities and representatives of Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, advertising expenses, the cost of printing
and mailing prospectuses to potential investors and indirect and overhead
costs of the Distributor, Prudential Securities and Prusec associated with the
sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES 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 .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 other distribution fees.
The Distributor has voluntarily agreed to limit its distribution-related fees
payable under the Class A Plan to .25% of the average daily net assets of the
Class A shares. This voluntary waiver may be terminated at any time by the
Distributor without notice.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE
CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of
1% of the average daily net assets of each of the Class B and Class C shares
and (ii) a service fee of .25 of 1% of the average daily net assets of each of
the Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
The Fund records all payments made under the Plans as expenses in the
calculation of net investment income. See "Distributor" in the Statement of
Additional Information.
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<PAGE>
Distribution expenses attributable to the sale of Class A, Class B and 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 or 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.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of Prudential Developing
Markets Fund, including a majority of the Trustees who are not "interested
persons" of the Fund (as defined in the Investment Company Act) and who have
no direct or indirect financial interest in the operation of the Plan or any
agreement related to the Plan (the Rule 12b-1 Trustees), vote annually to
continue the Plan. Each Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or of a majority of the outstanding shares
of the applicable class of the Fund. The Fund will not be obligated to pay
distribution and service fees incurred under any Plan if it is terminated or
not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources 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.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges.
FEE WAIVERS
The Distributor has agreed to limit its distribution fee for the Class A
shares as described above under "Distributor." Fee waivers will increase the
Fund's total return. See "Performance Information" in the Statement of
Additional Information and "Fund Expenses" above.
PORTFOLIO TRANSACTIONS
The Distributor or an affiliate of the Distributor may act as a broker or
futures commission merchant for the Fund, provided that the commissions, fees
or other remuneration it receives are fair and reasonable. See "Portfolio
Transactions and Brokerage" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Its mailing address
is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no
adverse impact on the Fund, the Manager, the Distributor, the Transfer Agent
and the Custodian have advised the Fund that they have been actively working
on necessary changes to their computer systems to prepare for the year 2000
and expect that their systems, and those of their outside service providers,
will be adapted in time for that event.
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<PAGE>
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF TRUSTEES HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NET ASSET VALUE TO BE
AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available or if such quotations are deemed not representative of fair
value, at fair value as determined in good faith under procedures established
by the Fund's Board of Trustees. See "Net Asset Value" in the Statement of
Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. 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.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. These figures will be based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in the Fund would have increased (decreased) over a specified
period of time (i.e., one, five or ten years or since inception of the Fund)
assuming that all distributions and dividends by the Fund were reinvested on
the reinvestment dates during the period and less all recurring fees. The
aggregate total return reflects actual performance over a stated period of
time. Average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. Average annual total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average
annual total return nor aggregate total return takes into account any federal
or state income taxes which may be payable upon redemption. The yield refers
to the income generated by an investment in the Fund over a one-month or 30-
day period. This income is then "annualized"; that is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage
of the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. The Fund also may include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. Further performance information is
contained in the Fund's annual and semi-annual reports to shareholders, which
may be obtained without charge. See "Shareholder Guide--Shareholder Services--
Reports to Shareholders."
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<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND INTENDS TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE FUND WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold
at market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
See "Taxes, Dividends and Distributions" in the Statement of Additional
Information.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders.
See "Taxes, Dividends and Distributions" in the Statement of Additional
Information. The Fund may, from time to time, invest in passive foreign
investment companies (PFICs). PFICs are foreign corporations which own mostly
passive assets or derive 75% or more of their income from passive sources. The
Fund's investments in PFICs may subject the Fund to federal income tax on
certain income and gains realized by the Fund.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Certain gains or
losses from fluctuations in foreign currency exchange rates ("Section 988"
gains or losses) will affect the amount of ordinary income the Fund will be
able to pay as dividends. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information. Any net capital gains (i.e., the excess
of net capital gains from the sale of assets held for more than 12 months over
net short-term capital losses) distributed to shareholders and properly
designated by the Fund will be taxable as capital gains to the shareholders,
whether or not reinvested and regardless of the length of time a shareholder
has owned his shares. The maximum capital gains rate for individuals is 28%
with respect to assets held by the Fund for more than 12 months, but not more
than 18 months, and 20% with respect to assets held by the Fund for more than
18 months. The maximum capital gains rate for corporate shareholders currently
is the same as the maximum tax rate for ordinary income.
Any gain or loss realized upon a sale or redemption (including any exchange)
of Fund shares by a shareholder who is not a dealer in securities will be
treated as capital gain or loss. In the case of any individual, any such
capital gain will be treated as short-term capital gain if the shares were
held for not more than 12 months, mid-term gain, taxable at the maximum rate
of 28%, if such shares were held for more than 12, but not more than 18
months, and long term capital gain, taxable at the maximum rate of 20%, if
such shares were held for more than 18 months. In the case of a corporation,
any such capital gain will be treated as long-term capital gain, taxable at
the same rates as ordinary income, if such shares were held for more than 12
months. Any such capital loss will be treated as long-term capital loss if the
shares have been held more than one year and otherwise as a short-term capital
gain or loss. Any such loss on shares that are held for six months or less,
however, will be treated as a long-term capital loss to the extent of any
capital gain distributions received by the shareholder.
Dividends received by corporate shareholders are eligible for a dividends-
received deduction of 70% to the extent the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable
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<PAGE>
to interest income, capital and currency gain, gain or loss from Section 1256
contracts, dividend income from foreign corporations and income from some
other sources will not be eligible for the corporate dividends received
deduction. Since the Fund is likely to have a substantial portion of its
assets invested in securities of foreign issuers, the amount of the Fund's
dividends eligible for the corporate dividends received deduction will be
minimal. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information. Corporate shareholders should consult their tax
advisers regarding other requirements applicable to the dividends received
deduction.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Withholding at this
rate is also required from dividends and capital gains distributions (but not
redemption proceeds) payable to shareholders who are otherwise subject to
backup withholding. Dividends of net investment income and short-term capital
gains paid to a foreign shareholder will generally be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND MAKE
DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL LOSSES
AT LEAST ANNUALLY. Dividends paid by the Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount
except that each class (other than Class Z) will bear its own distribution
charges, generally resulting in lower dividends for Class B and Class C shares
in relation to Class A and Class Z shares and lower dividends for Class A
shares in relation to Class Z shares. Distributions of net capital gains, if
any, will be paid in the same amount per share for each class of shares. See
"How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
TRUSTEES MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services LLC, Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Fund will notify each shareholder
after the close of the Fund's taxable year both of the dollar amount and the
taxable status of that year's dividends and distributions on a per share
basis.
IF YOU BUY SHARES ON OR IMMEDIATELY PRIOR TO THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.
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<PAGE>
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS ORGANIZED AS A SERIES OF PRUDENTIAL DEVELOPING MARKETS FUND, A
DELAWARE BUSINESS TRUST, ON OCTOBER 24, 1997. 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 (i) 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, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"How the Fund is Managed--Distributor." In accordance with the Prudential
Developing Markets Fund's Declaration of Trust, the Board of 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 Board of Trustees may determine.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class
is equal as to earnings, assets and voting privileges, except as noted above,
and each class (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's shares do not have cumulative
voting rights for the election of Trustees.
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 A 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.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Prudential Developing
Markets Fund with the SEC under the Securities Act of 1933. Copies of the
Registration Statement may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the office of the SEC in Washington, D.C.
20
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, INCLUDING PRUDENTIAL SECURITIES AND PRUSEC, OR DIRECTLY FROM THE
FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR
THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW
BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs sponsored by
Prudential Retirement Services should contact their client representative for
more information about Class Z shares. The purchase price is the NAV next
determined following receipt of an order in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent or the Distributor plus a sales charge which,
at your option, may be imposed either (i) at the time of purchase (Class A
shares) or (ii) on a deferred basis (Class B or Class C shares). Class Z
shares are offered to a limited group of investors at net asset value without
any sales charge. Payment may be made by wire, check or through your brokerage
account. See "Alternative Purchase Plan" below. See also "How the Fund Values
its Shares."
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares, except that the minimum initial
investment for Class C shares may be waived from time to time. There is no
minimum investment requirement for Class Z shares. The minimum subsequent
investment is $100 for all classes, except for Class Z shares for which there
is no such minimum. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan,
the minimum initial and subsequent investment is $50. See "Shareholder
Services" below.
Application forms can be obtained from PMFS, the Distributor, Prudential
Securities or Prusec. If a stock certificate is desired, it must be requested
in writing for each transaction. Certificates are issued only for full shares.
Shareholders who hold their shares through Prudential Securities will not
receive stock certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company (State
Street), Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Developing Markets Fund, Equity Fund Series, 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. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Developing
Markets Fund, Equity Fund Series, 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.
21
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THROUGH THIS PROSPECTUS FOUR CLASSES OF SHARES (CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST
BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE
AMOUNT OF THE PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND
OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- ------------------------ --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a for certain purchases
rate of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
CLASS Z None None Sold to a limited group of investors
</TABLE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of the Class Z shares, which are not subject to any
distribution or service fees) bears the separate expenses of its Rule 12b-1
distribution and service plan, (ii) each class has exclusive voting rights on
any matter submitted to shareholders that relates solely to its arrangement
and has separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interest of any other class,
and (iii) each class has a different exchange privilege, (iv) only Class B
shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. The four classes also
have separate exchange privileges. See "How to Exchange Your Shares" below.
The income attributable to each class and the dividends payable on the shares
of each class will be reduced by the amount of the distribution fee (if any)
of each class. Class B and Class C shares bear the expense of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
22
<PAGE>
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales share of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in NAV, the effect of the return
on the investment over this period of time or redemptions when the CDSC is
applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See
"Reduction and Waiver of Initial Sales Charges" and "Class Z Shares" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire sales charge to dealers. Selling
dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the NAV of
shares sold by such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money
23
<PAGE>
market funds other than those acquired pursuant to the exchange privilege) may
be aggregated to determine the applicable reduction. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (collectively, Benefit Plans), provided that the Benefit
Plan has existing assets of at least $1 million invested in shares of
Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) or 250 eligible employees or
participants. In the case of Benefit Plans whose accounts are held directly
with the Transfer Agent or Prudential Securities and for which the Transfer
Agent or Prudential Securities does individual account recordkeeping (Direct
Account Benefit Plans) and Benefit Plans sponsored by Prudential Securities or
its subsidiaries (Prudential Securities or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are
repaying loans made from such plans to the participant.
Prudential Retirement Programs. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or non-
qualified under the Internal Revenue Code, for which Prudential serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans
of a company for which Prudential serves as plan administrator or recordkeeper
are aggregated in meeting the $1 million threshold. The term "existing assets"
as used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or Smart Path Program (Participating Funds). "Existing assets"
also include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued by Prudential, and units of The Stable Value
Fund (SVF), an unaffiliated bank collective fund. Class A shares may also be
purchased at NAV by plans that have monies invested in GIA and SVF, provided
(i) the purchase is made with the proceeds of a redemption from either GIA or
SVF and (ii) Class A shares are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are
members of a common trade, professional or membership association
(Association) that participate in the PruArray Program provided that the
Association enters into a written agreement with Prudential. Such Benefit
Plans or non-qualified plans may purchase Class A shares at NAV without regard
to the assets or number of participants in the individual employer's qualified
plan(s) or non-qualified plans so long as the employers in the Association (i)
have retirement plan assets in the aggregate of at least $1 million or 250
participants in the aggregate and (ii) maintain their accounts with the
Transfer Agent.
PruArray Savings Program. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for
purchase at NAV by Individual Retirement Accounts and Savings Accumulation
Plans of the company's employees. The Program is available only to (i)
employees who open an IRA or Savings Accumulation Plan account with the
Transfer Agent and (ii) spouses of employees who open an IRA account with the
Transfer Agent. The program is offered to companies that have at least 250
eligible employees.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
24
<PAGE>
Other Waivers. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by the following persons: (a) officers
of the Prudential Mutual Funds (including the Fund), (b) employees of
Prudential Securities and 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, (c) employees of subadvisers of
the Prudential Mutual Funds provided that such purchases at NAV are permitted
by such person's employer, (d) 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, (e) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with the Distributor provided that purchases at NAV are
permitted by such person's employer, (f) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 180
days of the commencement of the financial adviser's employment at Prudential
Securities, or within one year in the case of Benefit Plans, (ii) the purchase
is made with proceeds of a redemption of shares of any open-end, 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
(iii) the financial adviser served as the client's broker on the previous
purchase, and (g) investors in Individual Retirement Accounts, provided the
purchase is made with the proceeds of a tax-free rollover of assets from a
Benefit Plan for which Prudential Investments serves as the recordkeeper or
administrator.
You must notify the Transfer Agent either directly or through your dealer
that you are entitled to the reduction or waiver of the sales charge. The
reduction or waiver will be granted subject to confirmation of your
entitlement. No initial sales charges are imposed upon Class A shares acquired
upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV per share next determined
following receipt of an order by the Transfer Agent, Prudential Securities,
Prusec or a dealer. Although there is no sales charge imposed at the time of
purchase, redemptions of Class B and Class C shares may be subject to a CDSC.
See "How to Sell Your Shares--Contingent Deferred Sales Charges" below. The
Distributor will pay, from its own resources, sales commissions of up to 4% of
the purchase price of Class B shares to dealers, 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 payment of sales commissions from the combination of the CDSC
and the distribution fee. See "How the Fund is Managed--Distributor." In
connection with the sale of Class C shares, the Distributor will pay, from its
own resources, dealers, financial advisers and other persons which distribute
Class C shares a sales commission of up to 1% of the purchase price at the
time of the sale.
CLASS Z SHARES
Class Z shares of the Fund are currently available for purchase by the
following categories of investors: (i) pension, profit-sharing or other
employee benefit plans qualified under Section 401 of the Internal Revenue
Code, deferred compensation and annuity plans under Sections 457 and 403(b)(7)
of the Internal Revenue Code and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided such Benefit Plans
(in combination with other plans sponsored by the same employer or group of
related employers) have at least $50 million in defined contribution assets;
(ii) participants in any fee-based program or trust program sponsored by
Prudential Securities, The Prudential Savings Bank, F.S.B. or any affiliate
which includes mutual funds as investment options and for which the Fund is an
available option; (iii) 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; (iv) Benefit
Plans
25
<PAGE>
for which Prudential Retirement Services serves as recordkeeper and that, as
of September 20, 1996, (a) were Class Z shareholders of the Prudential Mutual
Funds or (b) executed a letter of intent to purchase Class Z shares of the
Prudential Mutual Funds; (v) current and former Directors/Trustees of the
Prudential Mutual Funds (including the Fund); and (vi) employees of Prudential
and/or Prudential Securities who participate in a Prudential-sponsored
employee savings plan.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons which distribute shares a finders' fee from its own resources based on
a percentage of the net asset value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES OF THE FUND 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 OR THE DISTRIBUTOR. See "How
the Fund Values its Shares." In certain cases, however, redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charge, as described below. See "Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES FINANCIAL ADVISOR. IF YOU HOLD SHARES IN NON-CERTIFICATE
FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY YOU EXACTLY AS THE ACCOUNT IS
REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN
THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES, MUST BE RECEIVED BY THE
TRANSFER AGENT 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.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices. In the case of redemptions from a PruArray or Smart Path
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 OF THE CERTIFICATE AND/OR
WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the SEC, by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE
26
<PAGE>
PURCHASE CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING
SHARES BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Trustees determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable and will be
valued in the same manner as a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you will 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 Board
of 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 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 Fund's
Transfer Agent, either directly or through the Distributor, 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
Charges" below. Exercise of the repurchase privilege will generally not affect
the 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. See
"Taxes, Dividends and Distributions" in the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGES
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 one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares of the Fund to an amount which
is lower than the amount of all payments by you for shares during the
preceding six years, in the case of Class B shares, and one year, in the case
of Class C shares. A CDSC will be applied on the lesser of the original
purchase price or the current value of the shares being redeemed. Increases in
the value of your shares or shares 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. See "How the Fund is Managed--
Distributor" and "Waiver of the Contingent Deferred Sales Charges--Class B
Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of 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. See "How to Exchange Your Shares" below.
27
<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
YEAR SINCE CONTINGENT DEFERRED SALES CHARGE
PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR 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 net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years;
then of amounts representing the cost of shares held beyond the applicable
CDSC period; and finally, of amounts representing the cost of shares held for
the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability
of a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), 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 a Section 403(b)
custodial account. These distributions are: (i) in the case of a tax-deferred
retirement plan, a lump-sum or other distribution after retirement; (ii) in
the case of an IRA (including a Roth IRA), a lump-sum or other distribution
after attaining age 59 1/2 or a periodic distribution based on life
expectancy; (iii) in the case of a Section 403(b) custodial account, a lump
sum or other distribution after attaining age 59 1/2; and (iv) a tax-free
return of an excess contribution or plan distributions following the death or
disability of the shareholder, provided that the shares were purchased prior
to death or disability. The waiver does not apply in the case of a tax-free
rollover or transfer of assets, other than one following a separation from
service (i.e., following voluntary or involuntary termination of employment or
following retirement). Under no circumstances will the CDSC be waived on
redemptions resulting from the termination of a tax-deferred retirement plan,
unless such redemptions otherwise qualify for a waiver as described above. In
the case of Direct Account and Prudential Securities or Subsidiary Prototype
Benefit Plans, the CDSC will be waived on redemptions which represent
borrowings from such plans. Shares purchased with amounts used to repay a loan
from such plans on which a CDSC was not previously deducted will thereafter be
subject to a CDSC without regard to the time such amounts were previously
invested. In the case of a 401(k) plan, the
28
<PAGE>
CDSC will also be waived upon the redemption of shares purchased with amounts
used to repay loans made from the account to the participant and from which a
CDSC was previously deducted.
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% amount is reached.
In addition, the CDSC will be waived on redemptions of shares held by a
Trustee of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, 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. See "Purchase and
Redemption of Fund Shares--Waiver of the Contingent Deferred Sales Charge--
Class B Shares" in the Statement of Additional Information.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PruArray or SmartPath Plans. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the Transfer Agent's PruArray and SmartPath Programs.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected
at relative net asset value without the imposition of any additional sales
charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares 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 NAVs per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10
per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such
29
<PAGE>
shares were held in the money market fund will be excluded. For example, Class
B shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of
measuring the time period during which shares are held in a money market fund,
exchanges will be deemed to have been made on the last day of the month. Class
B shares acquired through exchange will convert to Class A shares after
expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, Class C and Class
Z shares will not constitute "preferential dividends" under the Internal
Revenue Code and (ii) that the conversion of shares does not constitute a
taxable event. The conversion of Class B shares into Class A shares may be
suspended if such opinions or rulings are no longer available. If conversions
are suspended, Class B shares of the Fund will continue to be subject,
possibly indefinitely, to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE), INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS
OF SUCH FUNDS. CLASS A, CLASS B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED
FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER
FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be imposed at the
time of the exchange. Any applicable CDSC payable upon the redemption of
shares exchanged will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market fund.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. For purposes of calculating
the holding period applicable to the Class B conversion feature, the time
period during which Class B shares were held in a money market fund will be
excluded. See "Conversion Feature--Class B Shares" above. An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The Exchange Privilege is available
only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISOR.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services 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 SHAREHOLDERS SHOULD MAKE EXCHANGES
BY MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS
NOTED ABOVE.
30
<PAGE>
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in the account of a shareholder who qualifies to
purchase Class A shares at NAV will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends
and distributions, (2) amounts representing the increase in the net asset
value above the total amount of payments for the purchase of Class B or Class
C shares and (3) amounts representing Class B or Class C shares held beyond
the applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or a
dealer 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
net asset value.
The Fund reserves the right to reject any exchange order, including
exchanges (and market timing transactions) which are of a size and/or
frequency engaged in by one or more accounts acting in concert or otherwise,
that have or may have an adverse effect on the ability of the Subadviser to
manage the portfolio. The determination that such exchanges or activity may
have an adverse effect and the determination to reject any exchange order
shall be in the discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund, including the Fund, reserves the
right to refuse purchase orders and exchanges by any person, group or commonly
controlled accounts if, in the Manager's sole judgement, such person, group or
accounts were following a market timing strategy or were otherwise engaged in
excessive trading ("Market Timers").
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have
31
<PAGE>
subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data is available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or
by telephone at (800) 225-1852 (toll-free) or, from outside the U.S.A., at
(732) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
32
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Fund at (800) 225-
1852 for a free prospectus. Read the prospectus carefully before you invest or
send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND
FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Developing Market Fund
Developing Markets Equity Fund
Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Multi-Sector Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential 20/20 Focus Fund
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
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell, or a solicita-
tion of any offer to buy any of the securities offered hereby in any jurisdic-
tion to any person to whom it is unlawful to make such offer in such
jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS........................................................... 2
What are the Fund's Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................. 4
HOW THE FUND INVESTS...................................................... 5
Investment Objective and Policies........................................ 5
Special Considerations and Risks of Investing in Developing Market Secu-
rities................................................................. 7
Hedging and Return Enhancement Strategies................................ 8
Other Investments and Policies........................................... 10
Investment Restrictions.................................................. 14
HOW THE FUND IS MANAGED................................................... 14
Manager.................................................................. 14
Distributor.............................................................. 15
Fee Waivers.............................................................. 16
Portfolio Transactions................................................... 16
Custodian and Transfer and Dividend Disbursing Agent..................... 16
Year 2000................................................................ 16
HOW THE FUND VALUES ITS SHARES............................................ 17
HOW THE FUND CALCULATES PERFORMANCE....................................... 17
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 18
GENERAL INFORMATION....................................................... 20
Description of Common Stock.............................................. 20
Additional Information................................................... 20
SHAREHOLDER GUIDE......................................................... 21
How to Buy Shares of the Fund............................................ 21
Alternative Purchase Plan................................................ 22
How to Sell Your Shares.................................................. 26
Conversion Feature--Class B Shares....................................... 29
How to Exchange Your Shares.............................................. 30
Shareholder Services..................................................... 31
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... A-1
</TABLE>
- --------------------------------------------------------------------------------
MF179A
<TABLE>
<S> <C>
Class A:
Class B:
CUSIP Nos.: Class C:
Class Z:
</TABLE>
<PAGE>
Prudential Latin America Equity Fund
- -------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 23, 1998
- -------------------------------------------------------------------------------
Prudential Latin America Equity Fund (the Fund) is a series of Prudential
Developing Markets Fund, an open-end, diversified, management investment
company. The Fund's investment objective is long-term growth of capital. It
seeks to achieve this objective by investing primarily in equity related
securities of companies domiciled in, or whose principal activities are in,
Latin America. "Latin America" is defined as Mexico and all countries located
in Central America and South America. See "How the Fund Invests--Investment
Objective and Policies." Under normal circumstances, the Fund intends to
invest at least 65% of its total assets in such securities. The Fund may also
invest in equity related securities of other companies and debt securities,
engage in various derivatives transactions, including options on equity
securities, stock indices, foreign currencies and futures contracts on foreign
currencies, and may purchase and sell futures contracts on foreign currencies,
groups of currencies and stock indices so as to hedge its portfolio and to
attempt to enhance return. There can be no assurance that the Fund's
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and its telephone number is
(800) 225-1852.
The Fund is not intended to constitute a complete investment program. Because
of its objective and policies, including its emphasis on Latin America, the
Fund may be considered of a speculative nature and subject to greater
investment risks than are assumed by certain other investment companies that
invest solely in securities of U.S. issuers or that do not emphasize
investments in a particular global region. See "How the Fund Invests--
Investment Objective and Policies--Special Considerations and Risks of
Investing in Latin American Securities."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated June 23, 1998, which information is
incorporated herein by reference (is legally considered part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
- -------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in the Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL LATIN AMERICA EQUITY FUND?
Prudential Latin America Equity Fund is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing
the proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is a series of Prudential
Developing Markets Fund, an open-end, diversified, management investment
company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity related securities of
Latin American companies. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" at page 5.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
The Fund invests primarily in equity related securities of issuers domiciled
in, or whose principal activities are in, Latin America. Unlike a mutual fund
that invests on a global basis, the Fund's concentration on Latin American
companies can result in more pronounced risks and rewards based upon economic
conditions that impact the region more or less than other global regions.
Foreign securities in general involve certain risks and considerations not
typically associated with investments in U.S. government securities and
securities of domestic companies, including political or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and the risk of
currency fluctuations. See "How the Fund Invests--Special Considerations and
Risks of Investing in Latin American Securities" at page 7. In addition, the
Fund may engage in various hedging and return enhancement strategies,
including the use of derivatives transactions. These activities may be
considered speculative and may result in higher risks and costs to the Fund.
See "How the Fund Invests--Hedging and Return Enhancement Strategies" at page
8. As with an investment in any mutual fund, an investment in this Fund can
decrease in value and you can lose money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
1.25% of the Fund's average daily net assets. As of May 31, 1998, PIFM served
as manager or administrator to 67 investment companies, including 45 mutual
funds, with aggregate assets of approximately $63 billion. The Prudential
Investment Corporation (PIC), doing business as Prudential Investments (PI,
the Subadviser or the investment adviser), furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PIFM. See "How the Fund is Managed--Manager" at page 14.
WHO DISTRIBUTES THE FUND'S SHARES?
Until approximately July 1, 1998, Prudential Securities Incorporated
(Prudential Securities or the Distributor), a major securities underwriter and
securities and commodities broker, will act as the Distributor of the Fund's
Class A, Class B, Class C and Class Z shares. On or about July 1, 1998,
Prudential Investment Management Services LLC (the Distributor) will serve as
the distributor of the Fund's shares. The Distributor is paid a distribution
and service fee with respect to Class A shares which is currently being
charged at the annual rate of .25 of 1% of the average daily net assets of the
Class A shares and is paid a distribution and service fee with respect to
Class B and Class C shares at the annual rate of 1% of the average daily net
assets of each of the Class B and Class C shares. The Distributor incurs the
expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed or paid for by the Fund.
See "How the Fund is Managed--Distributor" at page 15.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is $100
for Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 21 and "Shareholder
Guide--Shareholder Services" at page 31.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge. See
"How the Fund Values its Shares" at page 17 and "Shareholder Guide--How to Buy
Shares of the Fund" at page 21.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares through this Prospectus:
. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
. Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining from
5% to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing distribution-
related expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are subject
to lower ongoing distribution-related expenses)
approximately seven years after purchase.
. Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to higher
ongoing distribution-related expenses than Class A shares
but do not convert to another class.
. Class Z Shares: Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not subject
to any ongoing service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 22.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 26. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 18.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 5% None None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends.............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption
proceeds, whichever is
lower)................. None 5% during the 1% on redemp- None
first year, de- tions made
creasing by 1% within one
annually to 1% year of pur-
in the fifth chase
and sixth years
and 0% the sev-
enth year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
average net assets) -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Management Fees ....... 1.25% 1.25% 1.25% 1.25%
12b-1 Fees+............ .25++ 1.00 1.00 None
Other Expenses......... .50 .50 .50 .50%
---- ---- ---- ----
Total Fund Operating
Expenses............... 2.00%++ 2.75% 2.75% 1.75%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
EXAMPLE ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
Class A....................................................... $69 $110
Class B....................................................... $78 $115
Class C....................................................... $38 $ 85
Class Z ...................................................... $18 $ 55
You would pay the following expenses on the same investment,
assuming no redemption:
Class A....................................................... $69 $110
Class B....................................................... $28 $ 85
Class C....................................................... $28 $ 85
Class Z ...................................................... $18 $ 55
</TABLE>
The above example is based on anticipated data for the Fund's fiscal year
ending May 31, 1999. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes estimated operating
expenses of the Fund for the current fiscal year, which ends May 31, 1999, such
as Trustees' and professional fees, registration fees, reports to shareholders,
transfer agency and custodian (domestic and foreign) fees and miscellaneous
fees, but excludes foreign withholding taxes.
- ------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay up to an annual rate of .30 of 1% of average daily net assets of the
Class A shares, the Distributor has agreed to limit its distribution fee
with respect to Class A shares of the Fund to .25 of 1% of the average daily
net asset value of the Class A shares for the fiscal year ending May 31,
1999. Total operating expenses of Class A shares without such limitation
would be 2.05%. See "How the Fund is Managed--Distributor."
4
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN EQUITY
RELATED SECURITIES OF COMPANIES DOMICILED IN, OR DOING BUSINESS PRINCIPALLY
IN, LATIN AMERICA. UNDER NORMAL CIRCUMSTANCES, THE FUND WILL INVEST AT LEAST
65% OF ITS TOTAL ASSETS IN EQUITY RELATED SECURITIES OF LATIN AMERICAN
ISSUERS. THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE WILL
BE ACHIEVED. See "Investment Objective and Policies" in the Statement of
Additional Information.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF TRUSTEES WITHOUT SHAREHOLDER
APPROVAL.
For purposes of this Prospectus, "securities of Latin American issuers" and
"Latin American securities" are defined as: (i) securities of companies the
principal securities trading market for which is located in Latin America;
(ii) securities, traded in any market, of companies that derive 50% or more of
their total revenue from either goods or services produced in Latin America or
sales made in Latin America; (iii) securities of companies organized under the
laws of, and with a principal office in, Latin America; or (iv) securities
issued or guaranteed by the government of a country in Latin America, its
agencies or instrumentalities, political subdivisions or the central bank of
such a country. As used in this Prospectus, "Latin America" is defined as
Mexico and all countries located in Central America and South America,
including Argentina, Brazil, Chile, Columbia, Peru and Venezuela. "Equity
related securities," as used in this Prospectus, generally refers to common
stock, preferred stock, warrants or rights to purchase or to subscribe to such
securities, as well as sponsored or unsponsored American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and Global Depositary Receipts
(GDRs and, collectively with ADRs and EDRs, Depositary Receipts), convertible
securities, trust certificates, limited partnership interests and equity
participations. See "Other Investments and Policies--Depositary Receipts."
Determinations as to the eligibility of any security to be included in the
Fund's portfolio will be made by the Fund's investment adviser, under the
supervision of the Fund's Manager and Board of Trustees, based upon publicly
available information and inquiries made to the issuer of such security.
As with an investment in any mutual fund, an investment in this Fund can
decrease in value and you can lose money.
LATIN AMERICAN COMPANIES
The Fund's investment adviser intends to invest in the equity related
securities of Latin American issuers in countries in which it believes
investing is feasible and does not involve undue political risk. The issuers
considered by the investment adviser may have varying levels of net worth and
may include companies with small market capitalizations whose securities may
be more volatile than securities offered by companies with greater market
capitalizations or with higher levels of net worth.
In analyzing companies for investment, the investment adviser ordinarily
looks for one or more of the following characteristics: prospects for above-
average earnings per share growth; high return on invested capital; healthy
balance sheets; sound financial and accounting policies; overall financial
strength; strong competitive advantages; effective research and product
development and marketing; efficient service; pricing flexibility; strength of
management; and general operating characteristics which will enable the
companies to compete successfully in their marketplace--all in relation to the
prevailing prices of the securities of such companies.
CERTAIN LATIN AMERICAN COUNTRIES, SUCH AS ARGENTINA, BRAZIL AND MEXICO, ARE
SOME OF THE WORLD'S LARGEST DEBTORS TO COMMERCIAL BANKS AND FOREIGN
GOVERNMENTS, WHICH CAN RESULT IN GREATER INVESTMENT RISK IF SUCH
5
<PAGE>
COUNTRIES DECLARE MORATORIA ON THE PAYMENT OF PRINCIPAL OR INTEREST OF THEIR
DEBT OBLIGATIONS OR INSTITUTE ECONOMIC REFORMS, AS HAS HAPPENED WITH RESPECT
TO CERTAIN LATIN AMERICAN COUNTRIES. IN ADDITION, MOST LATIN AMERICAN
COUNTRIES HAVE EXPERIENCED SUBSTANTIAL, AND IN SOME PERIODS EXTREMELY HIGH,
RATES OF INFLATION FOR MANY YEARS, THOUGH IN MANY SUCH COUNTRIES GOVERNMENTAL
POLICIES DESIGNED TO REDUCE INFLATION HAVE BEEN EFFECTIVE. THERE CAN BE NO
ASSURANCE THAT HIGH RATES OF INFLATION WILL NOT CONTINUE OR WILL NOT RETURN IN
THOSE COUNTRIES WHERE IT HAS BEEN REDUCED. INFLATION AND RAPID FLUCTUATIONS IN
INFLATION RATES HAVE HAD AND MAY CONTINUE TO HAVE VERY NEGATIVE EFFECTS ON THE
ECONOMIES OF CERTAIN LATIN AMERICAN COUNTRIES AND ON THE PRICES FOR SECURITIES
OF ISSUERS LOCATED THEREIN.
THERE ARE CERTAIN RISKS ASSOCIATED WITH INVESTING IN SECURITIES OF LATIN
AMERICAN COMPANIES IN GENERAL AND SMALLER LATIN AMERICAN COMPANIES IN
PARTICULAR. THE FUND INVESTS PRIMARILY IN SECURITIES OF LATIN AMERICAN ISSUERS
AND, UNLIKE A FUND THAT INVESTS ON A GLOBAL BASIS, ECONOMIC CONDITIONS THAT
IMPACT LATIN AMERICA SPECIFICALLY CAN RESULT IN MORE PRONOUNCED RISKS OR
REWARDS TO INVESTORS. INSOFAR AS THE FUND INVESTS IN THE SECURITIES OF SMALLER
COMPANIES, THERE ARE ADDITIONAL RISKS THAT THE MARKET PRICES OF SUCH
SECURITIES WILL BE MORE VOLATILE THAN THOSE OF LARGER COMPANIES. BECAUSE
SMALLER COMPANIES USUALLY HAVE FEWER SHARES OUTSTANDING THAN LARGER COMPANIES,
IT MAY BE MORE DIFFICULT FOR THE FUND TO BUY OR SELL SIGNIFICANT AMOUNTS OF
SUCH SHARES WITHOUT AN UNFAVORABLE IMPACT ON PREVAILING MARKET PRICES. THERE
IS TYPICALLY LESS PUBLICLY AVAILABLE INFORMATION CONCERNING SMALLER COMPANIES
THAN FOR LARGER, MORE ESTABLISHED ONES. BECAUSE SMALLER COMPANIES TYPICALLY
HAVE SMALLER PRODUCT LINES AND COMMAND A SMALLER MARKET SHARE THAN DO LARGER
COMPANIES, SMALLER COMPANIES MAY BE MORE VULNERABLE TO FLUCTUATIONS IN THE
ECONOMIC CYCLE. See "Special Considerations and Risks of Investing in Latin
American Securities" below.
GENERAL
THE FUND MAY INVEST IN SECURITIES NOT LISTED ON SECURITIES EXCHANGES. These
securities will generally have an established market (such as the over-the-
counter market), the depth and liquidity of which may vary from time to time
and from security to security. The Fund may also hold up to 15% of its net
assets (determined at the time of investment) in restricted securities or
other securities that have a limited market. See "Other Investments and
Policies--Illiquid Securities" below.
The Fund intends to invest primarily in equity related securities of
companies domiciled in, or doing business principally in, Latin America. Latin
American countries may have relatively unstable governments, economies based
only on a few industries and securities markets that trade a limited number of
securities. Securities of issuers located in these countries tend to have
volatile prices and offer the potential for substantial loss as well as gain.
In addition, these securities may be less liquid than investments in
securities of issuers whose principal activities are in more established
markets as a result of inadequate trading volume or restrictions on trading
imposed by the governments or securities exchanges of such countries. See
"Special Considerations and Risks of Investing in Latin American Securities"
below.
THE FUND INTENDS TO INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
RELATED SECURITIES OF LATIN AMERICAN ISSUERS. UNDER NORMAL CIRCUMSTANCES, THE
REMAINDER OF THE FUND'S INVESTMENTS MAY BE IN OTHER SECURITIES OR INVESTMENT
VEHICLES, INCLUDING EQUITY RELATED SECURITIES OF OTHER COMPANIES AND DEBT
SECURITIES (INCLUDING MONEY MARKET INSTRUMENTS) OF FOREIGN AND DOMESTIC
COMPANIES, OR THE FUND MAY ENGAGE IN VARIOUS DERIVATIVES TRANSACTIONS,
INCLUDING OPTIONS ON EQUITY SECURITIES, STOCK INDICES, FOREIGN CURRENCIES AND
FUTURES CONTRACTS ON FOREIGN CURRENCIES, AND MAY PURCHASE AND SELL FUTURES
CONTRACTS ON FOREIGN CURRENCIES, GROUPS OF CURRENCIES AND STOCK INDICES SO AS
TO HEDGE ITS PORTFOLIO AND TO ATTEMPT TO ENHANCE RETURN. IN ADDITION, THE FUND
MAY (I) PURCHASE SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS, (II)
MAKE SHORT SALES AGAINST-THE-BOX AND (III) ENTER INTO REPURCHASE AGREEMENTS.
THE FUND MAY FROM TIME TO TIME LEND ITS PORTFOLIO SECURITIES TO BROKERS OR
DEALERS, BANKS OR OTHER RECOGNIZED INSTITUTIONAL BORROWERS OF SECURITIES AND
MAY INVEST TO A LIMITED EXTENT IN SECURITIES OF COMPANIES THAT HAVE BEEN IN
EXISTENCE FOR LESS THAN THREE YEARS, IN SECURITIES FOR WHICH MARKET QUOTATIONS
ARE NOT READILY AVAILABLE AND IN SECURITIES OF OTHER REGISTERED INVESTMENT
COMPANIES. SEE "INVESTMENT RESTRICTIONS" IN THE STATEMENT OF ADDITIONAL
INFORMATION.
6
<PAGE>
When conditions dictate a temporary defensive strategy (which during periods
of market volatility could be for an extended period of time), the Fund may
invest in money market instruments (including repurchase agreements maturing
in seven days or less) without limit. The Fund will only invest in money
market instruments that are rated, or are issued by companies that have
outstanding debt securities rated, at least C by S&P or Moody's, commercial
paper rated at least A-2 or Prime-2 by S&P or Moody's, respectively, or in
unrated securities of issuers that the Fund's investment adviser has
determined to be of comparable quality.
SPECIAL CONSIDERATIONS AND RISKS OF INVESTING IN LATIN AMERICAN SECURITIES
LATIN AMERICAN SECURITIES INVOLVE CERTAIN RISKS WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR
ECONOMIC INSTABILITY IN THE COUNTRIES IN WHICH THE ISSUER'S PRINCIPAL
ACTIVITIES TAKE PLACE, THE DIFFICULTY OF PREDICTING INTERNATIONAL TRADE
PATTERNS, THE POSSIBILITY OF IMPOSITION OF EXCHANGE CONTROLS AND THE RISK OF
CURRENCY FLUCTUATIONS. Such securities may be, and in the recent past have
been, subject to greater fluctuations in price than securities issued by U.S.
corporations; securities issued or guaranteed by the U.S. Government, its
instrumentalities or agencies; or securities of companies in other global
regions. In addition, there may be less publicly available information about a
Latin American company than about a domestic company. Foreign companies,
including Latin American companies, generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies in Latin
America than in the United States and an increased risk, therefore, of
uninsured loss due to lost, stolen or counterfeit stock certificates. Certain
countries may have only one securities depository which, if the Fund decides
to invest in securities that are located at such depository, may result in
risks to the Fund that cannot be avoided. With respect to certain Latin
American countries, there is a possibility of expropriation, nationalization,
confiscatory taxation or diplomatic developments which could affect investment
in those countries. In the event of a default on debt obligations of Latin
American issuers, it may be more difficult for the Fund to obtain or to
enforce a judgment against the issuers of such securities. The Fund may
encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies and obtain judgments in foreign courts. Also,
some countries may withhold portions of income and dividends at the source.
Finally, developing markets may have increased risks associated with clearance
and settlement as well as increased costs for commissions, custodial services
and other items associated with making an investment. Delays in settlement
could result in periods of uninvested assets, missed investment opportunities
or losses to the Fund.
ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN EQUITY RELATED SECURITIES,
IT MAY INVEST FROM TIME TO TIME IN DEBT SECURITIES OF LATIN AMERICAN ISSUERS.
In many instances, debt securities of Latin American issuers may provide
higher yields than securities of domestic issuers which have similar
maturities and are of similar quality. Under certain market conditions these
investments may be less liquid than the securities of U.S. corporations and
are certainly less liquid than securities issued or guaranteed by the U.S.
Government, its instrumentalities or agencies.
Shareholders should be aware that investing in the equity and fixed-income
markets of Latin American countries involves exposure to economies that are
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries and have often experienced
extremely high rates of inflation.
Many Latin American countries have economies based on only a few commodities
or industries and securities markets that trade infrequently or with low
levels of volume. Additionally, some Latin American countries may also
restrict the extent to which foreign investors may invest in their securities
markets or in a particular company.
IF A SECURITY IS DENOMINATED IN A FOREIGN CURRENCY, IT WILL BE AFFECTED BY
CHANGES IN CURRENCY EXCHANGE RATES AND IN EXCHANGE CONTROL REGULATIONS, AND
COSTS WILL BE INCURRED IN CONNECTION WITH CONVERSIONS BETWEEN
7
<PAGE>
CURRENCIES. IN ADDITION, IF A SECURITY IS DENOMINATED IN U.S. DOLLARS, THE
ABILITY OF THE ISSUER TO REPAY MAY BE SUBSTANTIALLY IMPAIRED BY DEVALUATION
AND THE COUNTRY'S AVAILABLE FOREIGN EXCHANGE RESERVES. 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 amount of such
currency at the time they were incurred. The Fund may, but need not, enter
into futures contracts on foreign currencies, forward foreign currency
exchange contracts and options on foreign currencies 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 interest or 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.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING PURCHASING
AND SELLING DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO
ATTEMPT TO ENHANCE RETURN, BUT NOT FOR SPECULATION. THESE STRATEGIES CURRENTLY
INCLUDE THE USE OF OPTIONS, FORWARD CURRENCY EXCHANGE CONTRACTS AND FUTURES
CONTRACTS AND OPTIONS THEREON. The Fund, and thus investors, may lose money
through any unsuccessful use of these strategies. The Fund's ability to use
these strategies may be limited by market conditions, regulatory limits and
tax considerations and there can be no assurance that any of these strategies
will succeed. See "Investment Objective and Policies" and "Taxes, Dividends
and Distributions" in the Statement of Additional Information. New financial
products and risk management techniques continue to be developed, and the Fund
may use these new investments and techniques to the extent consistent with its
investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, FINANCIAL INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR
FOREIGN SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO
ENHANCE RETURN OR TO HEDGE THE FUND'S PORTFOLIO. These options will be on
equity securities, financial indices (e.g., the S&P 500) and foreign
currencies. The Fund may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of 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 (or currencies) it intends to purchase.
The Fund may also purchase put and call options to offset previously written
put and call options of the same series. See "Investment Objective and
Policies--Options Transactions" in the Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT, FOR A SPECIFIED PERIOD OF TIME, TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE
PRICE). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver to the purchaser,
depending upon the terms of the option contract, the underlying securities or
currency upon receipt of the exercise price or a specified amount of cash.
When the Fund writes a call option, it gives up the potential for gain on the
underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the
8
<PAGE>
put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price or deliver a specified amount of cash to the purchaser. The
Fund might, therefore, be obligated to purchase the underlying securities or
currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. A written option is covered if,
as long as the Fund is obligated under the option, (i) it owns an offsetting
position in the underlying security or currency or (ii) it maintains in a
segregated account cash or other liquid assets in an amount equal to or
greater than its obligation under the option. The value of covered options
that the Fund may write is limited to 35% of its total assets. When the Fund
writes a "covered" option as described in (i) in the first sentence of this
paragraph, its losses are limited because it owns an offsetting position of
the underlying security or currency. When the Fund otherwise writes an option,
its losses are potentially unlimited. See "Investment Objective and Policies--
Options Transactions" in the Statement of Additional Information.
OPTIONS ON SECURITIES INDICES ARE SIMILAR TO OPTIONS ON EQUITY SECURITIES,
EXCEPT THAT THE EXERCISE OF SECURITIES INDEX OPTIONS REQUIRES CASH PAYMENTS
AND DOES NOT INVOLVE THE ACTUAL PURCHASE OR SALE OF SECURITIES. Rather than
the right to take or make delivery of the securities at a specified price, an
option on a securities index gives the holder the right, in return for a
premium paid, to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of an index option, in return for the
premium, is obligated to pay the amount of cash due upon exercise of the
option.
The Fund may purchase and sell put and call options on securities indices
for hedging against a decline in the value of the securities owned by the Fund
or against an increase in the market value of the type of securities in which
the Fund may invest. Securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security. Purchasing or selling
securities index options is subject to the risk that the value of its
portfolio securities may not change as much as or more than the index because
the Fund's investments generally will not match the composition of the index.
See "Investment Objective and Policies--Risks of Options on Indices" in the
Statement of Additional Information.
OVER-THE-COUNTER OPTIONS. THE FUND MAY ALSO PURCHASE AND WRITE (I.E., SELL)
PUT AND CALL OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES IN THE
OVER-THE-COUNTER MARKET (OTC OPTIONS). Unlike exchange-traded options, OTC
options are contracts between the Fund and its counterparty without the
interposition of any clearing organization. Thus, the value of an OTC option
is particularly dependent on the financial viability of the OTC counterparty.
The Fund's ability to purchase and write OTC options may be limited by market
conditions, regulatory limits and tax considerations. There are certain risks
associated with investments in OTC options. See "Investment Objective and
Policies--Special Risks of OTC Options" in the Statement of Additional
Information.
FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract, at a price set
on the date of the contract.
THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a currency bearing a substantial correlation to
the
9
<PAGE>
value of that currency (a cross hedge). Although there are no limits on the
number of forward contracts which the Fund may enter into, the Fund may not
position hedge (including cross hedges) with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time
of making any sale of the foreign currency) of the securities held in its
portfolio denominated or quoted in, or currently convertible into, such
currency. See "Investment Objective and Policies--Risks Related to Forward
Currency Exchange Contracts" in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR
CERTAIN HEDGING AND RISK MANAGEMENT PURPOSES AND TO ATTEMPT TO ENHANCE RETURN
IN ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION.
The Fund, and thus investors, may lose money through any unsuccessful use of
these strategies. These futures contracts and options thereon will be on
financial indices and foreign currencies or groups of foreign currencies. A
financial futures contract is an agreement to purchase or sell an agreed
amount of securities or currency at a set price for delivery in the future. A
stock index futures contract is an agreement in which one party agrees to
deliver to another 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 is made. The Fund may purchase
and sell stock index futures or related options as a hedge against changes in
market conditions.
UNDER REGULATIONS OF THE COMMODITY EXCHANGE ACT, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT ARE EXEMPT FROM THE DEFINITION OF
"COMMODITY POOL OPERATOR," SUBJECT TO COMPLIANCE WITH CERTAIN CONDITIONS. THE
EXEMPTION IS CONDITIONED UPON THE FUND'S PURCHASING AND SELLING FUTURES
CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING TRANSACTIONS, EXCEPT THAT
THE FUND MAY PURCHASE AND SELL FUTURES CONTRACTS AND OPTIONS THEREON FOR ANY
OTHER PURPOSE TO THE EXTENT THAT THE AGGREGATE INITIAL MARGIN AND OPTION
PREMIUMS DO NOT EXCEED 5% OF THE LIQUIDATION VALUE OF THE FUND'S TOTAL ASSETS.
THE VALUE OF ALL FUTURES CONTRACTS SOLD WILL NOT EXCEED 35% OF THE FUND'S
TOTAL ASSETS.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE USED IN SELECTING
PORTFOLIO SECURITIES. The correlation between movements in the price of a
futures contract and movements in the index or price of the currency being
hedged is imperfect, and there is a risk that the value of the index or
currency being hedged may increase or decrease at a greater rate than the
related futures contract, resulting in losses to the Fund. Certain futures
exchanges or boards of trade have established daily limits on the amount that
the price of futures contracts or options thereon may vary, either up or down,
from the previous day's settlement price. These daily limits may restrict the
Fund's ability to purchase or sell certain futures contracts or options
thereon on any particular day.
The Fund's ability to enter into or close out futures contracts and options
thereof is limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes, Dividends and
Distributions" In the Statement of Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. THE FUND, AND THUS
INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. If
the investment adviser's predictions of movements in the direction of
securities, foreign currencies and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than
if such strategies were not used. Risks inherent in the use of options,
foreign currency exchange contracts and futures contracts and options thereon
include (1)
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dependence on the investment adviser's ability to predict correctly movements
in the direction of interest rates, securities prices and currency markets;
(2) imperfect correlation between the price of options and futures contracts
and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that the skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular
instrument at any time; (5) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the
Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions. See "Taxes, Dividends & Distributions" in the Statement
of Additional Information.
OTHER INVESTMENTS AND POLICIES
DEPOSITARY RECEIPTS
ADRs are depositary receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or
a U.S. corporation. Generally, depositary receipts in registered form are
designed for use in the U.S. securities market and depositary receipts in
bearer form are designed for use in securities markets outside the U.S.
Depositary receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Depositary
receipts may be issued pursuant to sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts. Depositary receipts also involve the risks of other
investments in foreign securities, as discussed above. For purposes of the
Fund's investment policies, the Fund's investments in depositary receipts will
be deemed to be investments in the underlying securities.
CONVERTIBLE SECURITIES
A convertible security is a bond or preferred stock which may be converted
at a stated price within a specified period of time into a certain quantity of
the common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a similar nonconvertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
dependent upon a market price advance in the convertible security's underlying
common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Convertible debt securities in which the Fund may invest must comply with
the quality restrictions for debt securities described below. See "Other
Investments--Debt Securities Including Investment Grade Securities and High
Yield Debt Securities (Junk Bonds)."
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WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place 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 maintain, in a segregated account of
the Fund, cash or other liquid assets, marked-to-market daily, 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. See "Investment Objective and
Policies--When Issued or Delayed Delivery Securities" in the Statement of
Additional Information.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of a
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 participates in a
joint repurchase account with other investment companies managed by Prudential
Investments Fund Management LLC pursuant to an order of the Securities and
Exchange Commission (SEC). See "Investment Objective and Policies--Repurchase
Agreements" in the Statement of Additional Information
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets in a segregated
account or secures an irrevocable letter of credit in favor of the Fund in an
amount equal to at least 100%, determined daily, of the market value of the
securities loaned pursuant to applicable regulations. During the time
portfolio securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividend or interest paid on such securities and the Fund
may invest the cash collateral and earn additional income, or it may receive
an agreed upon amount of interest income from the borrower. As an operating
policy that may be changed without shareholder approval, the Fund will not
lend more than 30% of the value of its total assets. The Fund may pay
reasonable administration and custodial fees in connection with a loan. See
"Investment Objective and Policies--Lending of Portfolio Securities" in the
Statement of Additional Information.
INVESTMENT FUNDS
Certain developing markets are closed in whole or in part to equity
investments by foreigners except through specifically authorized investment
funds. Securities of other investment companies may be acquired by the Fund to
the extent permitted by the Investment Company Act. As a shareholder in an
investment fund, the Fund would bear not only its share of that investment
fund's expenses, including its investment advisory fee and other operating
fees, but also its own investment advisory fee and other operating expenses.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets (determined at the time of
investment) in illiquid securities, including repurchase agreements which have
a maturity of longer than seven days, securities with legal or contractual
restrictions on resale (restricted securities) and securities that are not
readily marketable in securities markets either within or outside of the
United States. Restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended (the Securities Act), and
privately placed commercial paper that have a readily available market are not
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considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of 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. See "Investment Objective and Policies--Illiquid
Securities" in the Statement of Additional Information. Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable notice
period.
The staff of the SEC has taken the position that purchased OTC Options and
the assets used as "cover" for written OTC Options are illiquid securities
unless the Fund and the counterparty have provided for the Fund, at the Fund's
election, to unwind the OTC Option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the
Fund to treat the assets used as "cover" as "liquid."
DEBT SECURITIES INCLUDING INVESTMENT GRADE SECURITIES AND HIGH YIELD DEBT
SECURITIES (JUNK BONDS)
The Fund may hold up to 35% of its total assets in debt securities rated at
least C by S&P or Moody's or, if unrated, determined to be of comparable
quality by the investment adviser. As an operating policy, which may be
changed without shareholder approval, the Fund will not invest more than 10%
of its total assets in debt securities rated BBB or lower by S&P or Baa or
lower by Moody's or, if unrated, debt securities that the Fund's investment
adviser has determined to be of comparable quality. Subsequent to its purchase
by the Fund, a security may be assigned a lower rating or cease to be rated.
Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in
determining whether the Fund should continue to hold the security in its
portfolio. Securities rated Baa by Moody's, although considered to be
investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Bonds rated C by S&P are of the lowest
quality and may be used when the issuer has filed a bankruptcy petition, but
debt payments are still being made. Moody's lowest rating is C, which is
applied to bonds that have extremely poor prospects of ever attaining any real
investment standing. See "Description of Security Ratings" in the Appendix I
to Statement of Additional Information.
The Fund may also invest in certain debt obligations customarily referred to
as "Brady Bonds," which are created in connection with debt restructuring
through the exchange of existing commercial bank loans to sovereign entities
for new obligations. Investments in Brady Bonds are generally considered
speculative and many Brady Bonds are rated below investment grade. As noted
above, the Fund does not currently intend to invest more than 10% of its
assets in debt securities, including Brady Bonds, rated lower than Baa by
Moody's or BBB by S&P. See "Investment Objective and Policies--Brady Bonds"
and "Description of Security Ratings" in the Appendix I to Statement of
Additional Information.
Lower-rated debt securities, including securities rated from BB to C by S&P
or Ba to C by Moody's or, if unrated, of comparable quality in the opinion of
the investment adviser, will usually offer higher yields than higher-rated
securities. However, there is more risk associated with lower-rated debt
securities due to the reduced creditworthiness and increased likelihood of
default that these securities carry. Lower-rated debt securities generally
tend to reflect short-term corporate and market developments to a greater
extent than higher-rated securities that react primarily to fluctuations in
the general level of interest rates. In addition, lower-rated debt securities
tend to demonstrate greater sensitivity to significant increases or decreases
in the level of interest rates. Also, since there may be fewer investors in
lower-rated debt securities, it may be more difficult to dispose of such
securities at times advantageous to the Fund.
The risk of loss due to default by the issuer of lower-rated securities is
significantly greater because such securities are usually unsecured and are
often subordinated to other obligations of the issuer. During an economic
downturn or a sustained period of rising interest rates, issuers of lower-
rated debt securities that are either highly leveraged companies or companies
in cyclically sensitive industries may experience deteriorated cash flow or
other financial stress that impairs the ability of the issuer to meet its
obligation to pay principal and interest to bondholders on a timely basis.
When the issuer of a lower-rated debt security that is included in the Fund's
investment portfolio is unable to honor its payment obligations to
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bondholders, the Fund's net asset value may be adversely affected. In
addition, the Fund may incur additional expenses if it seeks recovery upon a
default in the payment of principal and interest on a debt security.
BORROWING
The Fund may borrow an amount equal to no more than 33 1/3% of the value of
its total assets (computed at the time the loan is made) for temporary,
extraordinary or emergency purposes or for the clearance of transactions.
Asset coverage for borrowings must be maintained at 300% at all times. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If
the Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. This is the speculative factor known
as "leverage." The Fund does not currently intend to borrow money in order to
invest in securities. See "Investment Restrictions" in the Statement of
Additional Information.
PORTFOLIO TURNOVER
As a result of the Fund's investment policies, the portfolio turnover rate
is not expected to exceed 250%. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the
average monthly value of the Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. High portfolio
turnover (100% or more) may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information. In addition, high portfolio turnover may result in
increased short-term capital gains, which, when distributed to shareholders,
are treated as ordinary income. See "Taxes, Dividends and Distributions."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
1.25% OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM IS ORGANIZED IN NEW YORK AS
A LIMITED LIABILITY COMPANY.
PIFM may from time to time waive its management fee (or a portion thereof)
and subsidize operating expenses of the Fund. See "Fund Expenses." The Fund is
not required to reimburse PIFM for such fee waiver or expense subsidy. Fee
waivers and expense subsidies will increase the Fund's total return. See "How
the Fund Calculates Performance."
As of May 31, 1998, PIFM served as the manager to 45 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $65 billion.
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UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE
SUBADVISER OR THE INVESTMENT ADVISER), PI FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY
PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH
SERVICES. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises PI's
performance of such services.
The Fund's portfolio has been managed since its inception by a team of
investment professionals led by Maria Elena Carrion. Ms. Carrion oversees the
investment process and manages the overall regional and country allocations of
the Fund. Ms. Carrion has been employed by PIC since 1997. Prior to joining
PIC, Ms. Carrion was employed by Bankers Trust Company as a portfolio manager
beginning in April 1993. From June 1991 to April 1993, she was employed by
Latin American Securities (London). Ms. Carrion is a Chartered Financial
Analyst.
PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND, UNTIL APPROXIMATELY
JULY 1, 1998, SERVES AS THE DISTRIBUTOR OF THE SHARES OF THE FUND. IT IS AN
INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL. ON OR ABOUT JULY 1, 1998,
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), THREE GATEWAY
CENTER, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, WILL BEGIN ACTING
AS THE FUND'S DISTRIBUTOR. PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC IS A
LIMITED LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE
AND IS A WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING
THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor also incurs
the expenses of distributing the Fund's Class Z shares under the Distribution
Agreement, none of which is reimbursed by or paid for by the Fund. These
expenses include commissions and account servicing fees paid to, or on account
of, financial advisers of Prudential Securities and representatives of Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, advertising expenses, the cost of printing
and mailing prospectuses to potential investors and indirect and overhead
costs of the Distributor, Prudential Securities and Prusec associated with the
sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES 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 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 other distribution fees.
The Distributor has voluntarily agreed to limit its distribution-related fees
payable under the Class A Plan to .25% of the average daily net assets of the
Class A shares. This voluntary waiver may be terminated at any time by the
Distributor without notice.
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UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE
CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of
1% of the average daily net assets of each of the Class B and Class C shares
and (ii) a service fee of .25 of 1% of the average daily net assets of each of
the Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
The Fund records all payments made under the Plans as expenses in the
calculation of net investment income. See "Distributor" in the Statement of
Additional Information.
Distribution expenses attributable to the sale of Class A, Class B and 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 or 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.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of Prudential Developing
Markets Fund, including a majority of the Trustees who are not "interested
persons" of the Fund (as defined in the Investment Company Act) and who have
no direct or indirect financial interest in the operation of the Plan or any
agreement related to the Plan (the Rule 12b-1 Trustees), vote annually to
continue the Plan. Each Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or of a majority of the outstanding shares
of the applicable class of the Fund. The Fund will not be obligated to pay
distribution and service fees incurred under any Plan if it is terminated or
not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources 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.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges.
FEE WAIVERS
The Distributor has agreed to limit its distribution fee for the Class A
shares as described above under "Distributor." Fee waivers will increase the
Fund's total return. See "Performance Information" in the Statement of
Additional Information and "Fund Expenses" above.
PORTFOLIO TRANSACTIONS
The Distributor or an affiliate of the Distributor may act as a broker or
futures commission merchant for the Fund, provided that the commissions, fees
or other remuneration it receives are fair and reasonable. See "Portfolio
Transactions and Brokerage" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Its mailing address
is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
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YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund,
the Manager, the Distributor, the Transfer Agent and the Custodian have
advised the Fund that they have been actively working on necessary changes to
their computer systems to prepare for the year 2000 and expect that their
systems, and those of their outside service providers, will be adapted in time
for that event.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF TRUSTEES HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NET ASSET VALUE TO BE
AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available or if such quotations are deemed not representative of fair
value, at fair value as determined in good faith under procedures established
by the Fund's Board of Trustees. See "Net Asset Value" in the Statement of
Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. 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.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. These figures will be based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in the Fund would have increased (decreased) over a specified
period of time (i.e., one, five or ten years or since inception of the Fund)
assuming that all distributions and dividends by the Fund were reinvested on
the reinvestment dates during the period and less all recurring fees. The
aggregate total return reflects actual performance over a stated period of
time. Average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period.
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Average annual total return smooths out variations in performance and takes
into account any applicable initial or contingent deferred sales charges.
Neither average annual total return nor aggregate total return takes into
account any federal or state income taxes which may be payable upon
redemption. The yield refers to the income generated by an investment in the
Fund over a one-month or 30-day period. This income is then "annualized"; that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown
as a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing
the Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND INTENDS TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE FUND WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold
at market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
See "Taxes, Dividends and Distributions" in the Statement of Additional
Information.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders.
See "Taxes, Dividends and Distributions" in the Statement of Additional
Information. The Fund may, from time to time, invest in passive foreign
investment companies (PFICs). PFICs are foreign corporations which own mostly
passive assets or derive 75% or more of their income from passive sources. The
Fund's investments in PFICs may subject the Fund to federal income tax on
certain income and gains realized by the Fund.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Certain gains or
losses from fluctuations in foreign currency exchange rates ("Section 988"
gains or losses) will affect the amount of ordinary income the Fund will be
able to pay as dividends. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information. Any net capital gains (i.e., the excess
of net capital gains from the sale of assets held for more than 12 months over
net short-term capital losses) distributed to shareholders and properly
designated by the Fund will be taxable as capital gains to the shareholders,
whether or not reinvested and regardless of the length of time a shareholder
has owned his shares. The maximum capital gains rate for individuals is 28%
with respect to assets held by the Fund for more than 12 months, but not more
than 18 months, and 20% with respect to assets held by the Fund for more than
18 months. The maximum capital gains rate for corporate shareholders currently
is the same as the maximum tax rate for ordinary income.
18
<PAGE>
Any gain or loss realized upon a sale or redemption (including any exchange)
of Fund shares by a shareholder who is not a dealer in securities will be
treated as capital gain or loss. In the case of any individual, any such
capital gain will be treated as short-term capital gain if the shares were
held for not more than 12 months, mid-term gain, taxable at the maximum rate
of 28%, if such shares were held for more than 12, but not more than 18
months, and long term capital gain, taxable at the maximum rate of 20%, if
such shares were held for more than 18 months. In the case of a corporation,
any such capital gain will be treated as long-term capital gain, taxable at
the same rates as ordinary income, if such shares were held for more than 12
months. Any such capital loss will be treated as long-term capital loss if the
shares have been held more than one year and otherwise as a short-term capital
gain or loss. Any such loss on shares that are held for six months or less,
however, will be treated as a long-term capital loss to the extent of any
capital gain distributions received by the shareholder.
Dividends received by corporate shareholders are eligible for a dividends-
received deduction of 70% to the extent the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to interest income, capital and currency gain, gain or loss from
Section 1256 contracts, dividend income from foreign corporations and income
from some other sources will not be eligible for the corporate dividends
received deduction. Since the Fund is likely to have a substantial portion of
its assets invested in securities of foreign issuers, the amount of the Fund's
dividends eligible for the corporate dividends received deduction will be
minimal. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information. Corporate shareholders should consult their tax
advisers regarding other requirements applicable to the dividends received
deduction.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Withholding at this
rate is also required from dividends and capital gains distributions (but not
redemption proceeds) payable to shareholders who are otherwise subject to
backup withholding. Dividends of net investment income and short-term capital
gains paid to a foreign shareholder will generally be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND MAKE
DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL LOSSES
AT LEAST ANNUALLY. Dividends paid by the Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount
except that each class (other than Class Z) will bear its own distribution
charges, generally resulting in lower dividends for Class B and Class C shares
in relation to Class A and Class Z shares and lower dividends for Class A
shares in relation to Class Z shares. Distributions of net capital gains, if
any, will be paid in the same amount per share for each class of shares. See
"How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
TRUSTEES MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services LLC, Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities, you should contact your financial
19
<PAGE>
adviser to elect to receive dividends and distributions in cash. The Fund will
notify each shareholder after the close of the Fund's taxable year both of the
dollar amount and the taxable status of that year's dividends and
distributions on a per share basis.
IF YOU BUY SHARES ON OR IMMEDIATELY PRIOR TO THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS ORGANIZED AS A SERIES OF PRUDENTIAL DEVELOPING MARKETS FUND, A
DELAWARE BUSINESS TRUST, ON OCTOBER 24, 1997. 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 (i) 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, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"How the Fund is Managed--Distributor." In accordance with the Prudential
Developing Markets Fund's Declaration of Trust, the Board of 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 Board of Trustees may determine.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class
is equal as to earnings, assets and voting privileges, except as noted above,
and each class (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's shares do not have cumulative
voting rights for the election of Trustees.
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 A 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.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Prudential Developing
Markets Fund
20
<PAGE>
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, INCLUDING PRUDENTIAL SECURITIES AND PRUSEC, OR DIRECTLY FROM THE
FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR
THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW
BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs sponsored by
Prudential Retirement Services should contact their client representative for
more information about Class Z shares. The purchase price is the NAV next
determined following receipt of an order in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent or the Distributor plus a sales charge which,
at your option, may be imposed either (i) at the time of purchase (Class A
shares) or (ii) on a deferred basis (Class B or Class C shares). Class Z
shares are offered to a limited group of investors at net asset value without
any sales charge. Payment may be made by wire, check or through your brokerage
account. See "Alternative Purchase Plan" below. See also "How the Fund Values
its Shares."
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares, except that the minimum initial
investment for Class C shares may be waived from time to time. There is no
minimum investment requirement for Class Z shares. The minimum subsequent
investment is $100 for all classes, except for Class Z shares for which there
is no such minimum. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan,
the minimum initial and subsequent investment is $50. See "Shareholder
Services" below.
Application forms can be obtained from PMFS, the Distributor, Prudential
Securities or Prusec. If a stock certificate is desired, it must be requested
in writing for each transaction. Certificates are issued only for full shares.
Shareholders who hold their shares through Prudential Securities will not
receive stock certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company (State
Street), Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Developing Markets Fund, Latin America Equity Fund
Series, 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. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Developing
Markets Fund, Latin America Equity Fund Series, 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.
21
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THROUGH THIS PROSPECTUS FOUR CLASSES OF SHARES (CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST
BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE
AMOUNT OF THE PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND
OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- ------------------------ --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% Initial sales charge waived or reduced
the public offering price (currently being for certain purchases
charged at a rate
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
CLASS Z None None Sold to a limited group of investors
</TABLE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of the Class Z shares, which are not subject to any
distribution or service fees) bears the separate expenses of its Rule 12b-1
distribution and service plan, (ii) each class has exclusive voting rights on
any matter submitted to shareholders that relates solely to its arrangement
and has separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interest of any other class,
and (iii) each class has a different exchange privilege, (iv) only Class B
shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. The four classes also
have separate exchange privileges. See "How to Exchange Your Shares" below.
The income attributable to each class and the dividends payable on the shares
of each class will be reduced by the amount of the distribution fee (if any)
of each class. Class B and Class C shares bear the expense of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
22
<PAGE>
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales share of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in NAV, the effect of the return
on the investment over this period of time or redemptions when the CDSC is
applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See
"Reduction and Waiver of Initial Sales Charges" and "Class Z Shares" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire sales charge to dealers. Selling
dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the NAV of
shares sold by such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable
23
<PAGE>
reduction. See "Purchase and Redemption of Fund Shares--Reduction and Waiver
of Initial Sales Charges--Class A Shares" in the Statement of Additional
Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (collectively, Benefit Plans), provided that the Benefit
Plan has existing assets of at least $1 million invested in shares of
Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) or 250 eligible employees or
participants. In the case of Benefit Plans whose accounts are held directly
with the Transfer Agent or Prudential Securities and for which the Transfer
Agent or Prudential Securities does individual account recordkeeping (Direct
Account Benefit Plans) and Benefit Plans sponsored by Prudential Securities or
its subsidiaries (Prudential Securities or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are
repaying loans made from such plans to the participant.
Prudential Retirement Programs. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or non-
qualified under the Internal Revenue Code, for which Prudential serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans
of a company for which Prudential serves as plan administrator or recordkeeper
are aggregated in meeting the $1 million threshold. The term "existing assets"
as used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or Smart Path Program (Participating Funds). "Existing assets"
also include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued by Prudential, and units of The Stable Value
Fund (SVF), an unaffiliated bank collective fund. Class A shares may also be
purchased at NAV by plans that have monies invested in GIA and SVF, provided
(i) the purchase is made with the proceeds of a redemption from either GIA or
SVF and (ii) Class A shares are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are
members of a common trade, professional or membership association
(Association) that participate in the PruArray Program provided that the
Association enters into a written agreement with Prudential. Such Benefit
Plans or non-qualified plans may purchase Class A shares at NAV without regard
to the assets or number of participants in the individual employer's qualified
plan(s) or non-qualified plans so long as the employers in the Association (i)
have retirement plan assets in the aggregate of at least $1 million or 250
participants in the aggregate and (ii) maintain their accounts with the
Transfer Agent.
PruArray Savings Program. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for
purchase at NAV by Individual Retirement Accounts and Savings Accumulation
Plans of the company's employees. The Program is available only to (i)
employees who open an IRA or Savings Accumulation Plan account with the
Transfer Agent and (ii) spouses of employees who open an IRA account with the
Transfer Agent. The program is offered to companies that have at least 250
eligible employees.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by the following persons: (a) officers
of the Prudential Mutual Funds (including the Fund), (b) employees of
Prudential
24
<PAGE>
Securities and 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, (c) employees of subadvisers of the Prudential Mutual
Funds provided that such purchases at NAV are permitted by such person's
employer, (d) 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, (e) registered representatives and
employees of dealers who have entered into a selected dealer agreement with
the Distributor provided that purchases at NAV are permitted by such person's
employer, (f) investors who have a business relationship with a financial
adviser who joined Prudential Securities from another investment firm,
provided that (i) the purchase is made within 180 days of the commencement of
the financial adviser's employment at Prudential Securities, or within one
year in the case of Benefit Plans, (ii) the purchase is made with proceeds of
a redemption of shares of any open-end, 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 (iii) the financial
adviser served as the client's broker on the previous purchase, and (g)
investors in Individual Retirement Accounts, provided the purchase is made
with the proceeds of a tax-free rollover of assets from a Benefit Plan for
which Prudential Investments serves as the recordkeeper or administrator.
You must notify the Transfer Agent either directly or through your dealer
that you are entitled to the reduction or waiver of the sales charge. The
reduction or waiver will be granted subject to confirmation of your
entitlement. No initial sales charges are imposed upon Class A shares acquired
upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV per share next determined
following receipt of an order by the Transfer Agent, Prudential Securities
Prusec or a dealer. Although there is no sales charge imposed at the time of
purchase, redemptions of Class B and Class C shares may be subject to a CDSC.
See "How to Sell Your Shares--Contingent Deferred Sales Charges" below. The
Distributor will pay from its own resources, sales commissions of up to 4% of
the purchase price of Class B shares to dealers, 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 payment of sales commissions from the combination of the CDSC
and the distribution fee. See "How the Fund is Managed--Distributor." In
connection with the sale of Class C shares, the Distributor will pay, from its
own resources, dealers, financial advisers and other persons which distribute
Class C shares a sales commission of up to 1% of the purchase price at the
time of the sale.
CLASS Z SHARES
Class Z shares of the Fund are currently available for purchase by the
following categories of investors: (i) pension, profit-sharing or other
employee benefit plans qualified under Section 401 of the Internal Revenue
Code, deferred compensation and annuity plans under Sections 457 and 403(b)(7)
of the Internal Revenue Code and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided such Benefit Plans
(in combination with other plans sponsored by the same employer or group of
related employers) have at least $50 million in defined contribution assets;
(ii) participants in any fee-based program or trust program sponsored by
Prudential Securities, The Prudential Savings Bank, F.S.B. or any affiliate
which includes mutual funds as investment options and for which the Fund is an
available option; (iii) 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; (iv) Benefit
Plans for which Prudential Retirement Services serves as recordkeeper and
that, as of September 20, 1996, (a) were Class Z shareholders of the
Prudential Mutual Funds or (b) executed a letter of intent to purchase Class Z
shares of the Prudential Mutual Funds; (v) current and former
Directors/Trustees of the Prudential Mutual Funds (including the Fund); and
(vi) employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan.
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<PAGE>
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons which distribute shares a finders' fee from its own resources based on
a percentage of the net asset value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES OF THE FUND 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 OR THE DISTRIBUTOR. See "How
the Fund Values its Shares." In certain cases, however, redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charge, as described below. See "Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES FINANCIAL ADVISOR. IF YOU HOLD SHARES IN NON-CERTIFICATE
FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY YOU EXACTLY AS THE ACCOUNT IS
REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN
THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES, MUST BE RECEIVED BY THE
TRANSFER AGENT 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.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices. In the case of redemptions from a PruArray or Smart Path
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 OF THE CERTIFICATE AND/OR
WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the SEC, by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Trustees determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity
26
<PAGE>
with applicable rules of the SEC. Securities will be readily marketable and
will be valued in the same manner as a regular redemption. See "How the Fund
Values its Shares." If your shares are redeemed in kind, you will 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 Board
of 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 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 Fund's
Transfer Agent, either directly or through the Distributor, 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
Charges" below. Exercise of the repurchase privilege will generally not affect
the 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. See
"Taxes, Dividends and Distributions" in the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGES
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 one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares of the Fund to an amount which
is lower than the amount of all payments by you for shares during the
preceding six years, in the case of Class B shares, and one year, in the case
of Class C shares. A CDSC will be applied on the lesser of the original
purchase price or the current value of the shares being redeemed. Increases in
the value of your shares or shares 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. See "How the Fund is Managed--
Distributor" and "Waiver of the Contingent Deferred Sales Charges--Class B
Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of 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. See "How to Exchange Your Shares" below.
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<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
YEAR SINCE CONTINGENT DEFERRED SALES CHARGE
PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR 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 net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years;
then of amounts representing the cost of shares held beyond the applicable
CDSC period; and finally, of amounts representing the cost of shares held for
the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability
of a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), 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 a Section 403(b)
custodial account. These distributions are: (i) in the case of a tax-deferred
retirement plan, a lump-sum or other distribution after retirement; (ii) in
the case of an IRA (including a Roth IRA), a lump-sum or other distribution
after attaining age 59 1/2 or a periodic distribution based on life
expectancy; (iii) in the case of a Section 403(b) custodial account, a lump
sum or other distribution after attaining age 59 1/2; and (iv); a tax-free
return of an excess contribution or plan distributions following the death or
disability of the shareholder, provided that the shares were purchased prior
to death or disability. The waiver does not apply in the case of a tax-free
rollover or transfer of assets, other than one following a separation from
service (i.e., following voluntary or involuntary termination of employment or
following retirement). Under no circumstances will the CDSC be waived on
redemptions resulting from the termination of a tax-deferred retirement plan,
unless such redemptions otherwise qualify for a waiver as described above. In
the case of Direct Account and Prudential Securities or Subsidiary Prototype
Benefit Plans, the CDSC will be waived on redemptions which represent
borrowings from such plans. Shares purchased with amounts used to repay a loan
from such plans on which a CDSC was not previously deducted will thereafter
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<PAGE>
be subject to a CDSC without regard to the time such amounts were previously
invested. In the case of a 401(k) plan, the CDSC will also be waived upon the
redemption of shares purchased with amounts used to repay loans made from the
account to the participant and from which a CDSC was previously deducted.
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% amount is reached.
In addition, the CDSC will be waived on redemptions of shares held by a
Trustee of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, 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. See "Purchase and
Redemption of Fund Shares--Waiver of the Contingent Deferred Sales Charge--
Class B Shares" in the Statement of Additional Information.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PruArray or SmartPath Plans. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the Transfer Agent's PruArray and SmartPath Programs.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected
at relative net asset value without the imposition of any additional sales
charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares 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 NAVs per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10
per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange,
29
<PAGE>
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, Class C and Class
Z shares will not constitute "preferential dividends" under the Internal
Revenue Code and (ii) that the conversion of shares does not constitute a
taxable event. The conversion of Class B shares into Class A shares may be
suspended if such opinions or rulings are no longer available. If conversions
are suspended, Class B shares of the Fund will continue to be subject,
possibly indefinitely, to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE), INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS
OF SUCH FUNDS. CLASS A, CLASS B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED
FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER
FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be imposed at the
time of the exchange. Any applicable CDSC payable upon the redemption of
shares exchanged will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market fund.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. For purposes of calculating
the holding period applicable to the Class B conversion feature, the time
period during which Class B shares were held in a money market fund will be
excluded. See "Conversion Feature--Class B Shares" above. An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The Exchange Privilege is available
only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISOR.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services 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 SHAREHOLDERS SHOULD MAKE EXCHANGES
BY MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, LLC, AT THE ADDRESS
NOTED ABOVE.
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<PAGE>
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in the account of a shareholder who qualifies to
purchase Class A shares at NAV will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends
and distributions, (2) amounts representing the increase in the net asset
value above the total amount of payments for the purchase of Class B or Class
C shares and (3) amounts representing Class B or Class C shares held beyond
the applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or a
dealer 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
net asset value.
The Fund reserves the right to reject any exchange order, including
exchanges (and market timing transactions) which are of a size and/or
frequency engaged in by one or more accounts acting in concert or otherwise,
that have or may have an adverse effect on the ability of the Subadviser to
manage the portfolio. The determination that such exchanges or activity may
have an adverse effect and the determination to reject any exchange order
shall be in the discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund, including the Fund, reserves the
right to refuse purchase orders and exchanges by any person, group or commonly
controlled accounts if, in the Manager's sole judgement, such person, group or
accounts were following a market timing strategy or were otherwise engaged in
excessive trading ("Market Timers").
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have
31
<PAGE>
subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data is available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or
by telephone at (800) 225-1852 (toll-free) or, from outside the U.S.A., at
(732) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
32
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Fund at (800) 225-
1852 for a free prospectus. Read the prospectus carefully before you invest or
send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND
FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Developing Markets Fund
Developing Markets Equity Fund
Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Multi-Sector Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential 20/20 Focus Fund
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
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell, or a solicita-
tion of any offer to buy any of the securities offered hereby in any jurisdic-
tion to any person to whom it is unlawful to make such offer in such
jurisdiction.
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TABLE OF CONTENTS
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PAGE
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<S> <C>
FUND HIGHLIGHTS........................................................... 2
What are the Fund's Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................. 4
HOW THE FUND INVESTS...................................................... 5
Investment Objective and Policies........................................ 5
Special Considerations and Risks of Investing in Latin American
Securities............................................................. 7
Hedging and Return Enhancement Strategies................................ 8
Other Investments and Policies........................................... 11
Investment Restrictions.................................................. 14
HOW THE FUND IS MANAGED................................................... 14
Manager.................................................................. 14
Distributor.............................................................. 15
Fee Waivers.............................................................. 16
Portfolio Transactions................................................... 16
Custodian and Transfer and Dividend Disbursing Agent..................... 16
Year 2000................................................................ 17
HOW THE FUND VALUES ITS SHARES............................................ 17
HOW THE FUND CALCULATES PERFORMANCE....................................... 17
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 18
GENERAL INFORMATION....................................................... 20
Description of Common Stock.............................................. 20
Additional Information................................................... 20
SHAREHOLDER GUIDE......................................................... 21
How to Buy Shares of the Fund............................................ 21
Alternative Purchase Plan................................................ 22
How to Sell Your Shares.................................................. 26
Conversion Feature--Class B Shares....................................... 29
How to Exchange Your Shares.............................................. 30
Shareholder Services..................................................... 31
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... A-1
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MF180A_____________________________________________________________________
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<S> <C>
Class A:
Class B:
CUSIP Nos.: Class C:
Class Z:
</TABLE>
<PAGE>
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
Statement of Additional Information
dated June 23, 1998
Prudential Developing Markets Fund (the Fund) is an open-end, diversified
management company presently consisting of two series: Prudential Developing
Markets Equity Fund and Prudential Latin America Equity Fund (each, a Series
and collectively, the Series). The Fund has no prior history.
Prudential Developing Markets Equity Fund's investment objective is long-
term growth of capital. The Developing Markets Equity Fund seeks to achieve
its objective by investing primarily in equity related securities of companies
whose principal activities are in developing markets throughout the world.
Under normal circumstances, the Series will invest at least 65% of its total
assets in equity related securities of developing market issuers in at least
the three following regions: Europe, Asia and Latin America. "Developing
markets" include countries or markets that are defined as emerging or
developing by the International Finance Corporation, the International Bank
for Reconstruction and Development (World Bank) or the United Nations or its
authorities. The Series may also invest in equity related securities of other
companies and debt securities, engage in various derivatives transactions,
including options on equity securities, stock indices, foreign currencies and
futures contracts on foreign currencies, and may purchase and sell futures
contracts on foreign currencies, groups of currencies and stock indices so as
to hedge its portfolio and to attempt to enhance return. There can be no
assurance that the Series' investment objective will be achieved. See
"Investment Objective and Policies."
Prudential Latin America Equity Fund's investment objective is long term
growth of capital. It seeks to achieve this objective by investing primarily
in equity related securities of companies domiciled in, or doing business
principally in Latin America. "Latin America" is defined as Mexico and all
countries located in Central America and South America. Under normal
circumstances the Series intends to invest at least 65% of its total assets in
such securities. The Series may also invest in equity related securities of
other companies and debt securities, engage in various derivatives
transactions, including options on equity securities, stock indices, foreign
currencies and futures contracts on foreign currencies, and may purchase and
sell futures contracts on foreign currencies, groups of currencies and stock
indices so as to hedge its portfolio and to attempt to enhance return. There
can be no assurance that the Series' investment objective will be achieved.
See "Investment Objective and Policies."
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 for the relevant Series dated June 23,
1998, a copy of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
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<S> <C> <C>
Investment Objective and Policies........................ B-2 5
Investment Restrictions.................................. B-11 14
Trustees and Officers.................................... B-13 14
Manager.................................................. B-16 14
Distributor.............................................. B-17 15
Portfolio Transactions and Brokerage..................... B-18 16
Purchase and Redemption of Fund Shares................... B-19 22
Shareholder Investment Account........................... B-21 32
Net Asset Value.......................................... B-25 17
Taxes, Dividends and Distributions....................... B-25 18
Performance Information.................................. B-28 19
Custodian, Transfer and Dividend Disbursing Agent and In-
dependent Accountants................................... B-29 16
Financial Statements..................................... B-30 --
Report of Independent Accountants........................ B-33 --
Appendix I--Description of Security Ratings.............. I-1 --
Appendix II--General Investment Information.............. II-1 --
Appendix III--Historical Performance Data................ III-1 --
Appendix IV--Information Relating to Prudential.......... IV-1 --
</TABLE>
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MF179B
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND SERIES: The Prudential Developing
Markets Equity Fund's investment objective is long-term growth of capital. The
Developing Markets Equity Fund seeks to achieve its objective by investing
primarily in equity related securities of companies whose principal activities
are in developing markets throughout the world. "Developing markets" include
countries or markets that are defined as emerging or developing by the
International Finance Corporation, the International Bank for Reconstruction
and Development (World Bank) or the United Nations or its authorities. Under
normal circumstances, the Series intends to invest at least 65% of its total
assets in such securities in at least the three following regions: Europe,
Asia and Latin America. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" in the Series' Prospectus.
PRUDENTIAL LATIN AMERICA EQUITY FUND SERIES: Prudential Latin America Equity
Fund's investment objective is long term growth of capital. It seeks to
achieve this objective by investing primarily in equity related securities of
companies domiciled in, or doing business principally in Latin America. "Latin
America" is defined as Mexico and all countries located in Central America and
South America. Under normal circumstances, the Series intends to invest at
least 65% of its total assets in such securities. There can be no assurance
that the Series investment objective will be achieved. See "Investment
Objective and Policies" in the Series' Prospectus.
PORTFOLIO STRATEGY
In selecting portfolio securities, The Prudential Investment Corporation
(PIC), doing business as Prudential Investments (PI or the Subadviser),
focuses on individual companies with the potential for long-term capital
growth, including established companies with the potential for high earnings
growth and smaller and medium-sized companies that are well positioned to
adapt to market and industry changes. The Subadviser identifies such companies
on the basis of fundamental analysis, which involves assessing a company and
its business environment, management, balance sheet, income statement,
anticipated earnings and dividends and other related measures of value.
Although the primary portfolio management approach is company analysis, the
Subadviser also analyzes foreign currency movements against the U.S. dollar in
order to manage the foreign currency exposure of each Series and performs an
analysis of individual countries. The Subadviser uses a variety of sources and
techniques in analyzing these companies and countries and maintains strong
local contacts in securities markets around the world. The Subadviser monitors
and evaluates the economic and political climate and principal securities
markets of the country in which each company is located. The Subadviser has
broad access to international research and financial reports, data retrieval
services and industry analysts. In addition, the Subadviser maintains
relationships with the management of corporate issuers and from time to time
visits companies overseas in whose securities a Series may invest.
OPTIONS TRANSACTIONS
OPTIONS ON EQUITY SECURITIES. Each Series intends to purchase and write
(i.e., sell) put and call options that are traded on U.S. or foreign
securities exchanges or that are listed on NASDAQ or that are traded over-the-
counter. A call option is a short-term contract (having a duration of nine
months or less) pursuant to which the purchaser, in return for a premium paid,
has the right to buy the security underlying the option at a specified
exercise price at any time during the term of the option. The writer of the
call option, who receives the premium, has the obligation, upon exercise of
the option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract which gives the purchaser, in return
for a premium, the right to sell the underlying security at a specified price
during the term of the option. The writer of the put, who receives the
premium, has the obligation to buy the underlying security upon exercise at
the exercise price. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates. Each Series will write put
options only when the investment adviser desires to invest in the underlying
security.
A call option written by a Series is "covered" if such Series owns the
security underlying the option or has an absolute and immediate right to
acquire that security without additional consideration (or for additional
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if a Series holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or is greater
than the exercise price of the call written if the difference is maintained by
such Series in cash or other liquid assets in a segregated account with its
Custodian. A put option written by a Series is "covered" if the Series either
maintains in a segregated account with its Custodian cash, U.S. Government
obligations, equity securities or other liquid, unencumbered assets with a
value, marked to market daily, equal to the exercise price or holds on a
share-for-share basis a put of the same security as the put written if the
exercise price of the put held is equal to or greater than the exercise price
of the put written.
"Liquid Assets," as used in each Series' Prospectus and this Statement of
Additional Information, include U.S. Government securities, equity securities
(including foreign securities), investment grade debt obligation and other
liquid unencumbered assets.
B-2
<PAGE>
If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she has been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to
pledge for the benefit of the broker the underlying security or other assets
in accordance with the rules of the relevant exchange or clearinghouse, such
as The Options Clearing Corporation (OCC), an institution created to interpose
itself between buyers and sellers of options in the United States.
Technically, the clearinghouse assumes the other side of every purchase and
sale transaction on an exchange and, by doing so, guarantees the transaction.
A Series will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; such Series will realize
a loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by a Series.
A Series may also purchase a "protective put," i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, such Series
acquires the right to sell the underlying security at the exercise price of
the put regardless of the extent to which the underlying security declines in
value. The loss to such Series is limited to the premium paid for, and
transaction costs in connection with, the put plus the initial excess, if any,
of the market price of the underlying security over the exercise price.
However, if the market price of the security underlying the put rises, the
profit such Series realizes on the sale of the security will be reduced by the
premium paid for the put option less any amount (net of transaction costs) for
which the put may be sold. Similar principles apply to the purchase of puts on
stock indices, as described below.
OPTIONS ON STOCK INDICES. In addition to options on equity securities, a
Series may also purchase and sell put and call options on stock indices traded
on securities exchanges, listed on NASDAQ or traded over-the-counter. Options
on stock indices are similar to options on stock except that, rather than the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the
exercise price of the option, expressed in dollars times a specified multiple
(the multiplier). The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike stock options, all
settlements are in cash, and gain or loss depends on price movements in the
stock market generally (or in a particular industry or segment of the market)
rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an
option and the current level of the underlying index. A multiplier of 100
means that a one-point difference will yield $100. Options on different
indices may have different multipliers.
Because exercises of index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific stocks, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. In addition, unless a Series has other liquid assets which are
sufficient to satisfy the exercise of a call, such Series 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 stock, whether a Series will
realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of stock prices in the stock market
generally or in an industry or market segment rather than movements in the
price of a particular stock. Accordingly, successful use by a Series of
options on indices would be subject to the Subadviser's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. The Subadviser currently
uses such techniques in conjunction with the management of other mutual funds.
B-3
<PAGE>
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 each Series 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 a Series 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 a Series, as a covered call
option writer, is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders. Each Series intends to
purchase and sell only those options which are cleared by clearinghouses whose
facilities are considered to be adequate to handle the volume of options
transactions.
RISKS OF OPTIONS ON INDICES
Each Series' purchase and sale of options on indices will be subject to
risks described above under "Risks of Transactions in Options." In addition,
the distinctive characteristics of options on indices create certain risks
that are not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in 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, a Series 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 a Series. It is each Series' policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. Each
Series will not purchase or sell any index option contract unless and until,
in the Subadviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is no greater
than the risk in connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as either Series 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, each Series will write call options on indices only under
the circumstances described below under "Limitations on Purchase and Sale of
Stock Options and Options on Stock Indices, Foreign Currencies and Futures
Contracts on Foreign Currencies."
Price movements in a Series portfolio probably will not correlate precisely
with movements in the level of the index and, therefore, a Series bears the
risk that the price of the securities held by such Series may not increase as
much as the index. In such event, the relevant Series would bear a loss on the
call which is not completely offset by movements in the price of such Series'
portfolio. It is also possible that the index may rise when a Series'
portfolio of stocks does not rise. If this occurred, such Series would
experience a loss on the call which would not be 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
relevant Series portfolio in the opposite direction as the market would be
likely to occur for only a short period or to a small degree.
B-4
<PAGE>
Unless a Series has other liquid assets which are sufficient to satisfy the
exercise of a call, such Series 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 a Series fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 20% of such Series' total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.
When a Series has written a call on an index, there is also a risk that the
market may decline between the time such Series 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 such Series is able to sell stocks in its portfolio
to generate cash to settle the exercise. As with stock options, a Series will
not learn that an index option has been exercised until the day following the
exercise date but, unlike a call on stock where a Series would be able to
deliver the underlying securities in settlement, a Series 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 a Series has written is "covered" by an index call held by
such Series with the same strike price, such Series 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 such Series exercises the call it holds or the time such
Series sells the call which, in either case, would occur no earlier than the
day following the day the exercise notice was filed.
If a Series 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, a Series 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 a Series 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.
SPECIAL RISKS OF OTC OPTIONS
When a Series writes an OTC option, it generally will be able to close out
the OTC option prior to its expiration only by entering into a closing
purchase transaction with the dealer with which the relevant Series originally
wrote the OTC option. Any such cancellation if agreed to, may require the
relevant Series to pay a premium to the counterparty. While a Series will
enter into OTC options only with dealers which agree to, and which are
expected to be capable of, entering into closing transactions with such
Series, there can be no assurance that such Series will be able to liquidate
an OTC option at a favorable price at any time prior to expiration. Until a
Series is able to effect a closing purchase transaction in a covered OTC call
option that such Series has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or different
cover is substituted. Alternatively, a Series could write an OTC call option
to, in effect, close an existing OTC call option or write an OTC put option to
close its position on an OTC put option. However, the Series would remain
exposed to each counterparty's credit risk on the put or call until such
option is exercised or expires. There is no guarantee that a Series will be
able to write put or call options, as the case may be, that would effectively
close an existing position. In the event of insolvency of the counterparty, a
Series may be unable to liquidate an OTC option.
In entering into OTC options, a Series will be exposed to the risk that the
counterparty will default on, or be unable to complete, due to bankruptcy or
otherwise, its obligation on the option. In such event, a Series may lose the
benefit of the transaction. The value of an OTC option to a Series is
dependent upon the financial viability of the counterparty. If a Series
decides to enter into transactions in OTC options, the Subadviser will take
into account the credit quality of counterparties in order to limit the risk
of default by the counterparty.
RISKS OF OPTIONS ON FOREIGN CURRENCIES
Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. Risks
include those described in the Prudential Developing Markets Equity Fund
Prospectus under "How the Fund Invests--Investment Objective and Policies--
Special Considerations and Risks of Investing in Developing Market Securities"
and the Prudential Latin America Fund Prospectus under "How the Fund Invests--
Investment Objective and Policies--Special Considerations and Risks of
Investing in Latin American Securities," including government actions
affecting currency valuation and the movements of currencies from one country
to another. The quantities of currency underlying option contracts represent
odd lots in a market dominated by transactions between banks; this can mean
extra transaction costs upon exercise. Option markets may be closed while
round-the-clock interbank currency markets are open, which can create price
and rate discrepancies.
B-5
<PAGE>
RISKS RELATED TO FORWARD CURRENCY EXCHANGE CONTRACTS
Each Series may enter into forward foreign currency exchange contracts in
several circumstances. When a Series enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when a Series
anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, such Series may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount
of foreign currency involved in the underlying transactions, a Series will be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is purchased
or sold, or on which the dividend or interest payment is declared, and the
date on which such payments are made or received.
Additionally, when the Subadviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, a
Series may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Series' portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in denominated foreign currencies will change as a consequence of
market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. A
Series does not intend to enter into such forward contracts to protect the
value of its portfolio securities on a regular or continuous basis. A Series
will also not enter into such forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate such
Series to deliver an amount of foreign currency in excess of the value of such
Series' portfolio securities or other assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made
with regard to overall diversification strategies. However, the Manager and
Subadviser believe that it is important to have the flexibility to enter into
such forward contracts when they determine that the best interests of a Series
will thereby be served. If a Series enters into a position hedging
transaction, the transaction will be "covered" by the position being hedged,
or the Series' Custodian or subcustodian will place cash or other liquid
assets in a segregated account of such Series (less the value of the
"covering" positions, if any) in an amount equal to the value of such Series'
total assets committed to the consummation of the given forward contract. The
assets placed in the segregated account will be marked to market daily, and if
the value declines, additional cash or securities will be placed in the
account so that the value of the account will, at all times, equal the amount
of a Series' net commitment with respect to the forward contract. A Series'
ability to enter into forward foreign currency exchange contracts may be
limited by certain requirements for qualification as a regulated investment
company under the Internal Revenue Code. See "Taxes, Dividends and
Distributions."
A Series generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Series may
sell the portfolio security and make delivery of the foreign currency, or it
may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for a Series to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency that such Series is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
If a Series retains the portfolio security and engages in an offsetting
transaction, such Series will incur a gain or a loss to the extent that there
has been movement in forward contract prices. Should forward contract prices
decline during the period between the date a Series enters into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Series will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward contract prices increase, a Series will suffer a loss to the extent
that the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
A Series' dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, a Series is not
required to enter into such transactions with regard to its foreign currency-
denominated securities. It also should be realized that this method of
protecting the value of a Series' portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying
prices of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase.
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Although each Series values its assets daily in terms of U.S. dollars, it
does not intend physically to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Series at one rate, while offering a lesser rate of exchange
should a Series desire to resell that currency to the dealer.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
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. In the case of futures contracts on stock indices, the correlation
between the price of the futures contract and the movements in the index may
not be perfect. Therefore, a correct forecast of currency rates, market trends
or international political trends by the Subadviser may still not result in a
successful hedging transaction.
Although each Series will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event a Series could not close a futures position and the
value of such position declined, such Series would be required to continue to
make daily cash payments of variation margin. There is no guarantee that the
price movements of the portfolio securities denominated in foreign currencies
will, in fact, correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract. Currently, futures
contracts are available on the Australian Dollar, British Pound, Canadian
Dollar, Japanese Yen, Swiss Franc, German Mark and Euro, among others. Futures
contracts are also available on the S&P 500 Stock Index, the NYSE Composite
Index and the Major Market Index, and other global exchanges.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), are exempt from the definition of "commodity pool
operator," subject to compliance with certain conditions. The exemption is
conditioned upon a Series' purchasing and selling futures contracts and
options thereon for bona fide hedging transactions, except that a Series may
purchase and sell futures contracts and options thereon for any other purpose
to the extent that the aggregate initial margin and option premiums do not
exceed 5% of the liquidation value of the relevant Series' total assets. Each
Series will use currency futures and options on futures or commodity options
contracts in a manner consistent with these requirements.
Successful use of futures contracts by a Series is also subject to the
ability of such Series' Subadviser to predict correctly movements in the
direction of markets and other factors affecting currencies or the stock
market generally. For example, if a Series has hedged against the possibility
of an increase in currency rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases
instead, such Series 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 a Series has insufficient cash
to meet daily variation margin requirements, it may need to sell securities to
meet such requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Series
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 a Series may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be
reflected in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of
the option is required upon exercise to assume an offsetting futures position
(a short position if the option is a call and a long position if the option is
a put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin
account which represents the amount by which the market price of the futures
contract, at exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
Currently options can be purchased or written with respect to futures
contracts on the Australian Dollar, British Pound, Canadian Dollar, Japanese
Yen, Swiss Franc, German Mark and Euro, among others. With respect to stock
indices, options are traded on futures contracts for the S&P 500 Stock Index
and the NYSE Composite Index and other global indices.
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The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such
closing transactions can be effected.
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS AND OPTIONS ON STOCK
INDICES, FOREIGN CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
Each Series may write put and call options on stocks only if they are
covered, and such options must remain covered so long as the Fund is obligated
as a writer. Each Series will write put options on stock indices and foreign
currencies and futures contracts on foreign currencies only if they are
covered by segregating with the Fund's Custodian an amount of cash, short-term
investments or other liquid assets equal to the aggregate exercise price of
the puts. During the coming fiscal year, neither Series intends to purchase or
sell options on equity securities or stock indices if the aggregate premiums
paid for such outstanding options would exceed 5% of the relevant Series'
total assets.
Except as described below, a Series will write call options on indices only
if it holds a portfolio of stocks at least equal to the value of the index
times the multiplier times the number of contracts. When a Series writes a
call option on a broadly-based stock market index, such Series will segregate
or put into escrow with its Custodian, or pledge to a broker as collateral for
the option, cash, U.S. Government securities, or other liquid assets 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 a Series has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which
are stocks of issuers in such industry or market segment, 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 relevant
Series' holdings in that industry or market segment. No individual security
will represent more than 15% of the amount so segregated, pledged or escrowed
in the case of broadly-based stock market index options or 25% of such amount
in the case of industry or market segment index options. If at the close of
business on any day the market value of such qualified securities so
segregated, escrowed or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, a Series will so
segregate, escrow or pledge an amount in cash, or other liquid assets equal in
value to the difference. In addition, when a Series writes a call on an index
which is in-the-money at the time the call is written, such Series 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 a Series'
obligation to segregate additional amounts in the event that the market value
of the qualified securities falls below 100% of the current index value times
the multiplier times the number of contracts. A "qualified security" is an
equity security which is listed on a national securities exchange or listed on
NASDAQ against which the relevant Series has not written a stock call option
and which has not been hedged by such Series by the sale of stock index
futures. However, if a Series holds a call on the same index as the call
written and the exercise price of the call held either is equal to or less
than the exercise price of the call written or is greater than the exercise
price of the call written but the difference is maintained by such Series in
cash or other liquid assets in a segregated account with its Custodian, it
will not be subject to the requirements described in this paragraph.
Each Series intends to 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 such Series is subject or
to which such Series expects to be subject in connection with future
purchases. Each Series also intends to engage in such transactions when they
are economically appropriate for the reduction of risks inherent in the
ongoing management of such Series. Each Series may write options on futures
contracts to realize through the receipt of premium income a greater return
than would be realized in a Series' portfolio securities alone.
POSITION LIMITS. Transactions by a Series 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 a Series may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
Manager or Subadviser. An exchange, board of trade or other trading facility
may order the liquidation of positions found to be in excess of these limits,
and it may impose certain other sanctions.
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BRADY BONDS
Each Series may invest in certain debt obligations customarily referred to
as "Brady Bonds," which are created in connection with debt restructuring
through the exchange of existing commercial bank loans to sovereign entities
for new obligations under a plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented in a number of countries to date including Argentina,
Brazil, Bulgaria, Costa Rica, Croatia, the Dominican Republic, Ecuador, Ivory
Coast, Jordan, the former Yugoslav Republic of Macedonia, Mexico, Nigeria,
Panama, Peru, the Philippines, Poland, Russia, Slovenia, Uruguay, Venezuela
and Vietnam (collectively, the "Brady Countries"). In addition, some countries
have reached an agreement in principle to restructure their bank debt
according to a Brady Plan and other countries are expected to negotiate
similar restructurings in the future. In some cases countries have
restructured or are planning to restructure their external bank debt into new
loans or promissory notes.
Many of the Brady Bonds have been issued relatively recently, and,
accordingly, do not have a long payment history. They may be collateralized or
uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated), and they have been actively traded in the over-the-
counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds which have the same
maturity as the Brady Bonds. Interest payments on these Brady Bonds generally
are collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest
payments. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). There can be
no assurance that Brady Bonds in which a Series may invest will not be subject
to restructuring arrangements or to requests for new credit, which may cause
such Series to suffer a loss of interest or principal on any of its holdings.
Most Brady Bonds issued by Mexico to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or
comparable collateral denominated in other currencies) and interest coupon
payments collateralized on an 18-month rolling-forward basis by funds held in
escrow by an agent for the bondholders. A significant portion of Brady Bonds
issued by Venezuela and Argentina to date have principal repayments at final
maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New
York as collateral agent.
In light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are generally considered speculative. In addition, many Brady Bonds currently
are rated below investment grade. These securities are subject to each Series'
current operating policy of not investing more than 10% of its total assets in
debt securities rated lower than Baa by Moody's or BBB by S&P.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a temporary defensive strategy (which during periods
of market volatility could be for an extended period of time), a Series may
invest in money market instruments, including commercial paper of domestic
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, obligations issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities and repurchase
agreements (described more fully below). Such investments may be subject to
certain risks, including future political and economic developments, the
possible imposition of withholding taxes on interest income, the seizure or
nationalization of foreign deposits and foreign exchange controls or other
restrictions.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, a Series may purchase
securities on a when-issued or delayed delivery basis; that is, delivery and
payment can take place a month or more after the date of the transaction. A
Series will make commitments for such when-issued or delayed delivery
transactions only with the intention of actually acquiring the securities. The
Fund's Custodian will maintain, in a separate account of the relevant Series,
cash, or other liquid, unencumbered assets, marked-to-market daily, having a
value equal to or greater than such commitments. If a Series chooses to
dispose of the right to acquire a when-issued or delayed delivery security
prior to its acquisition, it could, as with the disposition of any other
portfolio security, incur
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a gain or loss due to market fluctuations. The Series do not intend to have
more than 5% of their respective net assets (determined at the time of
entering into the transaction) involved in transactions on a when-issued or
delayed delivery basis during the coming year.
SHORT SALES AGAINST-THE-BOX
Each Series may make short sales of securities or maintain a short position,
provided that (i) at all times when a short position is open the relevant
Series owns an equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box) and (ii) not more than 25% of the relevant Series'
net assets (determined at the time of the short sale) may be subject to such
sales. The Series do not intend to have more than 5% of their respective net
assets (determined at the time of the short sale) subject to short sales
against-the-box during the coming year.
REPURCHASE AGREEMENTS
Each Series' repurchase agreements will be collateralized by U.S. Government
obligations. A Series' will enter into repurchase transactions only with
parties meeting creditworthiness standards approved by the Fund's Board of
Trustees. Each Series' Subadviser will monitor the creditworthiness of such
parties, under the general supervision of the Board of Trustees. In the event
of a default or bankruptcy by a seller, a Series will promptly seek to
liquidate the collateral. To the extent that the proceeds from any sale of
such collateral upon a default in the obligation to repurchase are less than
the repurchase price, a Series will suffer a loss.
Each Series 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 (SEC). On a
daily basis, any uninvested cash balances of a Series may be aggregated with
those of such investment companies and invested in one or more repurchase
agreements. Each Series participates in the income earned or accrued in the
joint account based on the percentage of its investment.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, a Series may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
relevant Series' total assets and provided that such loans are callable at any
time by such Series and are at all times secured by cash or equivalent
collateral (or a letter of credit) that is equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is
that a Series 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 on one business day's notice or by
the relevant Series at any time. If the borrower fails to maintain the
requisite amount of collateral, the loan automatically terminates and the
relevant Series can 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 relevant Series, and any
gain or loss in the market price during the loan would inure to such Series.
Since voting or consent rights which accompany loaned securities pass to the
borrower, each Series 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 relevant Series'
investment in the securities which are the subject of the loan. Each Series
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.
SECURITIES OF OTHER INVESTMENT COMPANIES
A Series may invest up to 5% of its total assets in securities of other
registered investment companies. Each Series does not intend to invest in such
securities during the coming fiscal year. If a Series does invest in
securities of other registered investment companies, shareholders of such
Series may be subject to duplicate management and advisory fees.
SEGREGATED ACCOUNTS
The Fund will establish a segregated account with its Custodian, State
Street Bank and Trust Company, in which it will maintain 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, futures contracts,
written options and options on futures contracts (unless otherwise
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covered). If collateralized or otherwise covered, in accordance with SEC
guidelines, these will not be deemed to be senior securities. The assets
deposited in the segregated account will be marked-to-market daily.
ILLIQUID SECURITIES
A Series may not hold more than 15% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper and foreign securities will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Trustees. In reaching liquidity decisions, the Subadviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser, and (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options
are illiquid securities unless a Series and the counterparty have provided for
such Series, at such Series' election, to unwind the over-the-counter option.
The exercise of such an option ordinarily would involve the payment by such
Series of an amount designed to reflect the counterparty's economic loss from
an early termination, but does allow such Series to treat the assets used as
"cover" as "liquid."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without (i) in the case of the Prudential
Developing Markets Equity Fund, the approval of the holders of a majority of
such Series outstanding voting securities and (ii) in the case of the
Prudential Latin America Equity Fund, the approval of the holders of a
majority of such Series' outstanding voting securities. A "majority of such
Series' outstanding voting securities," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting
shares are present in person or represented by proxy or (ii) more than 50% of
the outstanding voting shares.
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A Series may not:
1. Purchase securities on margin (but a Series may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Series 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, except to
the extent permitted by applicable law. The Fund currently does not intend to
engage in short sales.
3. Issue senior securities, borrow money or pledge its assets, except that a
Series may borrow up to 33 1/3% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or
for the clearance of transactions. A Series may pledge up to 20% of the value
of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, forward foreign currency exchange contracts and collateral 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 a Series to Trustees pursuant to
deferred compensation arrangements are not deemed to be a pledge of assets or
the issuance of a senior security.
4. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result: (i) with respect to 75% of a
Series' total assets, more than 5% of such assets (determined at the time of
investment) would then be invested in securities of a single issuer, or (ii)
25% or more of the Fund's total assets (determined at the time of investment)
would be invested in a single industry.
5. Purchase any security if as a result such Series would then hold more
than 10% of the outstanding voting securities of an issuer.
6. Buy or sell real estate or interests in real estate, except that a Series
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.
7. Purchase or sell commodities or contracts on commodities, except to the
extent that such Series may do so in accordance with applicable law, as may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
8. 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.
9. Make investments for the purpose of exercising control or management.
10. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Series' assets or net assets, it is intended that if
the percentage limitation is met at the time the investment is made, then 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
a Series' asset coverage for borrowings falls below 300%, such Series will
take prompt action to reduce its borrowings, as required by applicable law.
B-12
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
Edward Trustee President and Director of BMC Fund, Inc., a closed-end
D. Beach investment company; previously, Vice Chairman of
(73) Broyhill Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of Trustees of
Mars Hill College; and Director of The High Yield
Income Fund, Inc.
Stephen Trustee Executive Director (May 1985 through December 1997) of
C. Eyre The John A. Hartford Foundation, Inc. (charitable
(75) foundation); Director of Faircom, Inc.; and Trustee
Emeritus of Pace University.
Delayne Trustee Marketing and Management Consultant; Director of The
Dedrick High Yield Income Fund, Inc.
Gold
(59)
*Robert Trustee Vice President, of Prudential Investments since
F. Gunia September 1997; Executive Vice President and Treasurer
(51) (since December 1996), Prudential Investments Fund
Management LLC (PIFM); Senior Vice President (since
March 1987) of Prudential Securities Incorporated
(Prudential Securities); formerly Chief Administrative
Officer (July 1990-September 1996), Director (January
1989-September 1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June 1987-
September 1996) of Prudential Mutual Fund Management,
Inc. (PMF); Vice President and Director (since May
1989) of The Asia Pacific Fund, Inc.; Director of The
High Yield Income Fund, Inc.
Don G. Trustee Chairman and Chief Executive Officer (since 1980) of
Hoff Intertec, Inc. (investments); Chairman and Chief
(62) Executive Officer of The Lamaur Corporation, Inc.;
Director of Innovative Capital Management, Inc. and The
Greater China Fund, Inc.; and Chairman and Director of
The Asia Pacific Fund, Inc.
Robert Trustee President (since 1981) of Robert E. LaBlanc Associates,
E. Inc. (telecommunications); formerly General Partner at
LaBlanc Salomon Brothers and Vice-Chairman of Continental
(63) Telecom; Director of Storage Technology Corporation,
Titan Corporation, Salient 3 Communications, Inc. and
Tribune Company; and Trustee of Manhattan College.
*Mendel Trustee Chief Investment Officer (since October 1996) of
A. Prudential Mutual Funds; formerly Chief Financial
Melzer, Officer (November 1995-September 1996) of Prudential
CFA (37) Investments, Senior Vice President and Chief Financial
751 Officer (April 1993-November 1995) of Prudential
Broad Preferred Financial Services, Managing Director (April
Street 1991-April 1993) of Prudential Investment Advisors and
Newark, Senior Vice President (July 1989-April 1991) of
NJ 07102 Prudential Capital Corporation; Chairman and Director
of Prudential Series Fund, Inc.; and Director of The
High Yield Income Fund, Inc.
*Richard President and Employee of Prudential Investments; formerly President,
A. Trustee Chief Executive Officer and Director (October 1993-
Redeker September 1996) Prudential Mutual Fund Management,
(54) Inc., Executive Vice President, Director and Member of
751 Operating Committee (October 1993-September 1996),
Broad Prudential Securities, Director (October 1993-September
Street 1996) of Prudential Securities Group, Inc., Executive
Newark, Vice President (January 1994-September 1996) of The
NJ 07102 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.; President and Director of The High
Yield Income Fund, Inc.
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
Robin B. Trustee Chairman (since August 1996) and Chief Executive Officer
Smith (since January 1988), formerly President (September
(58) 1981-August 1996) and Chief Operating Officer
(September 1981-December 1988) of Publishers Clearing
House; Director of BellSouth Corporation, Texaco Inc.,
Springs Industries Inc. and Kmart Corporation.
Stephen Trustee President and Chief Executive Officer (since June 1996)
Stoneburn of Quadrant Media Corp. (a publishing company);
(54) formerly President (June 1995-June 1996) of Argus
Integrated Media, Inc., Senior Vice President and
Managing Director (January 1993-1995) of Cowles
Business Media, Senior Vice President (January 1991-
1992) and Publishing Vice President (May 1989-December
1990) of Gralla Publications (a division of United
Newspapers, U.K.) and Senior Vice President of
Fairchild Publications, Inc.
Nancy H. Trustee Economist; Director of Inland Steel Industries,
Teeters director/trustee of other Prudential Mutual Funds;
(67) formerly, Vice President and Chief Economist of
International Business Machines; Member of the Board of
Governors of the Federal Reserve System; Governor of
the Horace H. Rackham School of Graduate Studies of the
University of Michigan; Assistant Director of the
Committee on the Budget of the US House of
Representatives; Senior Fellow at the Library of
Congress; Senior Fellow at the Brookings Institution;
staff at Office of Management and Budget, Council of
Economic Advisors and the Federal Reserve Board.
S. Jane Secretary Senior Vice President (since December 1996) of PIFM;
Rose (52) Senior Vice President and Senior Counsel (since July
1992) of Prudential Securities; formerly Senior Vice
President (January 1991-September 1996) and Senior
Counsel (June 1987-September 1996) of Prudential Mutual
Fund Management, Inc.
Robert C. Assistant Secretary Assistant General Counsel (since September 1997) of
Rosselot PIFM; formerly a partner with the firm of Howard &
(37) Howard, Bloomfield Hills, Michigan (December 1995-
September 1997) and Corporate Counsel of Federated
Investors (1990-1995).
Grace C. Treasurer and First Vice President (since December 1996) of PIFM;
Torres Principal First Vice President (since March 1994) of Prudential
(38) Financial and Securities; formerly First Vice President (March 1994-
Accounting Officer September 1996) of Prudential Mutual Fund Management,
Inc. and Vice President (July 1989-March 1994) of
Bankers Trust.
Stephen Assistant Vice President and Tax Director (since March 1996) of
M. Treasurer Prudential Investments; formerly First Vice President
Ungerman (February 1993-March 1996).
(44)
</TABLE>
- ---------
(1) Unless otherwise stated, the address is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, Newark, New Jersey 07102-4077.
* "Interested" Director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential, Prudential Securities or PIFM.
Trustees and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities.
B-14
<PAGE>
The officers conduct and supervise the daily business operations of the
Fund, while the Trustees, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy
of the Fund.
The Board of Trustees has adopted a retirement policy which calls for the
retirement of Trustees on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Trustees who were age 68
or older as of December 31, 1993. Under the phase-in provision, Messrs. Beach
and Eyre are scheduled to retire on December 31, 1999 and 1998, respectively.
Pursuant to the terms of the Management Agreement with the Fund on behalf of
the Series, the Manager pays all compensation of officers and employees of
each Series as well as the fees and expenses of all Trustees of the Fund who
are affiliated persons of the Manager. The Fund pays each of its Trustees who
is not an affiliated person of PIFM annual compensation of $4,000, in addition
to certain out-of-pocket expenses. Such amount is allocated to each Series.
The amount of annual compensation paid to each Trustee may change as a result
of the introduction of additional funds upon 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 such Trustees' fees which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Fund. 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
to the Trustees who are not affiliated with the Manager for the fiscal year
ended July 31, 1998 and the aggregate compensation paid to such Trustees for
service on the Fund's Board and that of all other investment companies managed
by PIFM (Fund Complex) for the calendar year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM FUND
AGGREGATE BENEFITS ACCRUED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES(2)
----------------- ------------ ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Edward D. Beach--
Trustee................ --0-- None N/A $135,000(38/63)*
Stephen C. Eyre--
Trustee................ --0-- None N/A $ 45,000(12/13)*
Delayne D. Gold--
Trustee................ --0-- None N/A $135,000(38/63)*
Robert F. Gunia(1)--
Trustee................ --0-- None N/A --
Don G. Hoff--Trustee.... --0-- None N/A $ 45,000(12/13)*
Robert F. LaBlanc--
Trustee................ --0-- None N/A $ 45,000(12/13)*
Mendel A. Melzer(1)--
Trustee................ --0-- None N/A --
Richard A. Redeker(1)--
Trustee................ --0-- None N/A --
Robin B. Smith--Trustee. --0-- None N/A $ 90,000(27/34)*
Stephen Stoneburn--
Trustee................ --0-- None N/A $ 45,000(12/13)*
Nancy H. Teeters--
Trustee................ --0-- None N/A $ 90,000(26/50)*
</TABLE>
- ---------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Trustees, do not receive compensation from the Fund or any fund
in the Fund Complex.
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1997, including amounts deferred at the election
of Trustees under the funds' deferred compensation plans. Including
accrued interest, total deferred compensation amounted to $139,081 for
Trustee Robin Smith. Currently, Ms. Smith has agreed to defer some of her
fees at the T-Bill rate and other fees at the Fund rate.
B-15
<PAGE>
MANAGER
The manager of each Series is Prudential Investments Fund Management LLC
(formerly Prudential Mutual Fund Management LLC), as successor to Prudential
Mutual Fund Management, Inc. (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 Series, comprise the
Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
relevant Series' Prospectus. As of May 31, 1998, PIFM managed and/or
administered open-end and closed-end management investment companies with
assets of approximately $65 billion. According to the Investment Company
Institute, as of December 31, 1997, the Prudential Mutual Funds were the 17th
largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities and Prudential. Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent), a wholly-owned
subsidiary of PIFM, serves as the transfer agent for the Prudential Mutual
Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund with respect to the
Series (the Management Agreement), PIFM, subject to the supervision of the
Fund's Board of Trustees and in conformity with the stated policies of each
Series, manages both the investment operations of the Series and the
composition of the Series' portfolio, including the purchase, retention,
disposition and loan of securities. In connection therewith, PIFM is obligated
to keep certain books and records of the Series. PIFM also administers the
Trust's business affairs and, in connection therewith, furnishes the Series
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, and PMFS, the Fund's transfer and dividend disbursing
agent. The management services of PIFM for the Series 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 1.25% of each Series' average daily net assets. The fee
is computed daily and payable monthly.
In connection with its management of the business affairs of each Series,
PIFM bears the following expenses:
(a) the salaries and expenses of all of its and each Series personnel except
the fees and expenses of Trustees who are not affiliated persons of PIFM or
the Series' Subadviser;
(b) all expenses incurred, by PIFM or a Series in connection with managing
the ordinary course of such Series' business, other than those assumed by a
Series as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation,
doing business as Prudential Investments (PI, the Subadviser or the investment
adviser), pursuant to the subadvisory agreement between PIFM and PI (the
Subadvisory Agreement).
Under the terms of the Management Agreement, each Series 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 such Series' Subadviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation to maintain
required records of each Series and to price such Series' shares, (d) the
charges and expenses of legal counsel and independent accountants for such
Series, (e) brokerage commissions and any issue or transfer taxes chargeable
to such Series in connection with its securities transactions, (f) all taxes
and corporate fees payable by such Series to governmental agencies, (g) the
fees of any trade associations of which such Series may be a member, (h) the
cost of stock certificates representing shares of such Series, (i) the cost of
fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of such Series and its shares with
the SEC and the states, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and 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 such Series' 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 a Series 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. The Management Agreement was last approved by the Board of
Trustees of the Fund, including a majority of the Trustees who are not parties
to the contract or interested persons of any such party, as defined in the
Investment Company Act, on October 25, 1997.
B-16
<PAGE>
PIFM has entered into a Subadvisory Agreement with PI. The Subadvisory
Agreement provides that PI will furnish investment advisory services in
connection with the management of each Series. In connection therewith, PI is
obligated to keep certain books and records of the Series. PIFM continues to
have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PI's performance of such services. PI is
reimbursed by PIFM for the reasonable costs and expenses incurred by PI in
furnishing those services.
The Subadvisory Agreement was last approved by the Board of Trustees,
including a majority of the Trustees who are not parties to the contract or
interested persons of any such party, as defined in the Investment Company
Act, on October 25, 1997.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by a Series, PIFM or PI upon not more than 60 days', nor less than
30 days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
DISTRIBUTOR
Until July 1, 1998 Prudential Securities Incorporated (Prudential Securities
or, until July 1, 1998, the Distributor), One Seaport Plaza, New York, New
York 10292 will continue to act as the distributor of the shares of the
Series. Beginning July 1, 1998, Prudential Investment Management Services LLC
(the Distributor), Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, will act as Distributor of each Series.
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 on behalf of the Series under Rule 12b-1 under the Investment Company Act
and a distribution agreement (the Distribution Agreement), the Distributor
incurs the expenses of distributing the Series' Class A, Class B and Class C
shares. The Distributor also incurs the expenses of distributing the Series'
Class Z shares under the Distribution Agreement, none of which are reimbursed
by or paid for by either Series. See "How the Fund is Managed--Distributor" in
the relevant Series' Prospectus.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B and Class C
shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the relevant Series' Prospectus.
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 Trust and who have no direct or indirect financial
interest in the operation of the Class A, Class B, or Class C Plans (the Rule
12b-1 Trustees), cast in person at a meeting called for the purpose of voting
on such continuance. The Plans may each be terminated at any time, without
penalty, by the vote of a majority of the Rule 12b-1 Trustees, or by the vote
of the holders of a majority of the outstanding shares of the applicable class
of a Series on not more than 30 days' written notice to any other party to the
Plans. The Plans may not be amended to increase materially the amounts to be
spent for the services described therein without approval by the shareholders
of the applicable class (by both Class A and Class B shareholders, voting
separately, in the case of material amendments to the Class A Plan), 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. A Series will not be contractually 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 a Series by the Distributor. The report includes 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. The Distribution Agreement was
approved by the Board of Trustees, including a majority of the Rule 12b-1
Trustees, on October 25, 1997.
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 on unreimbursed distribution expenses
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 on shares of a Series may not exceed .75 of 1% per class. The
6.25% limitation applies to each class of a Series rather than on a per
shareholder basis. If aggregate sales charges were to exceed 6.25% of total
gross sales of any class, all sales charges on shares of that class would be
suspended.
B-17
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Series, the selection of
brokers, dealers and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. The term "Manager" as
used in this section includes the Subadviser. Broker-dealers may receive
negotiated brokerage commissions on a Series' 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 exchanges or boards of trade are
subject to negotiation between the Manager and the broker or futures
commission merchant.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting
as principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount
of compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in
which case no commissions or discounts are paid. A Series will not deal with
Prudential Securities in any transaction in which Prudential Securities acts
as principal. Thus, it will not deal with Prudential Securities acting as
market maker, and it will not execute a negotiated trade with Prudential
Securities if execution involves Prudential Securities' acting as principal
with respect to any part of a Series' order.
In placing orders for portfolio securities or futures contracts of the
Series, the Manager is required to give primary consideration to obtaining the
most favorable price and efficient execution. Within the framework of this
policy, the Manager will consider the research and investment services
provided by brokers, dealers or futures commission merchants who effect or are
parties to portfolio transactions of a Series, the Manager or the Manager's
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the
execution of transactions for a Series may be used in managing other
investment accounts. Conversely, brokers, dealers or futures commission
merchants furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are far larger
than the Series', and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing
investment management for the Series. Commission rates are established
pursuant to negotiations with the broker, dealer or futures commission
merchant based on the quality and quantity of execution services provided by
the broker, dealer or futures commission merchant in the light of generally
prevailing rates. The Manager's policy is to pay higher commissions to
brokers, other than Prudential Securities, for particular transactions than
might be charged if a different broker had been selected, on occasions when,
in the Manager's opinion, this policy furthers the objective of obtaining best
price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Series to brokers other than
Prudential Securities in order to secure research and investment services
described above, subject to review by the Fund's Board of Trustees from time
to time as to the extent and continuation of this practice. The allocation of
orders among brokers and the commission rates paid are reviewed periodically
by the Trust'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 SEC. This
limitation, in the opinion of each Series, will not significantly affect the
Series' ability to pursue its present investment objective. However, in the
future in other circumstances, a Series 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 may act as a
securities broker or futures commission merchant for the Series. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for a Series, the commissions, fees or other remuneration received by
Prudential Securities (or any affiliate) must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or futures
commission merchant in a commensurate arm's-length transaction. Furthermore,
the Board of Trustees of the Fund, including a majority of the 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
B-18
<PAGE>
compensation for effecting transactions on a national securities exchange for
a Series unless such Series has expressly authorized the retention of such
compensation. Prudential Securities must furnish to each Series at least
annually a setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for such Series 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.
Transactions in options by a Series will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same
or different exchanges or are written or held in one or more accounts or
through one or more brokers. Thus, the number of options which a Series may
write or hold may be affected by options written or held by the Manager and
other investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of a Series may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares of a
Series are offered to a limited group of investors at net asset value without
any sales charge. See "Shareholder Guide--How to Buy Shares of the Fund" in
the relevant Series' Prospectus.
Each class of shares represents an interest in the same assets of such
Series and is identical in all respects except that (i) 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, (ii) each class has
exclusive voting rights with respect to any matter submitted to shareholders
that relates solely to its arrangement and has separate voting rights on any
matter submitted to shareholders in which the interests of one class differ
from the interests of any other class, (iii) each class has a different
exchange privilege, (iv) only Class B shares have a conversion feature and (v)
Class Z shares are offered exclusively for sale to a limited group of
investors. See "Distributor" and "Shareholder Investment Account--Exchange
Privilege."
ISSUANCE OF SERIES SHARES FOR SECURITIES
Transactions involving the issuance of Series shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of such Series, (b) are liquid and not subject to
restrictions on resale and (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 the Series investment adviser.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between each Series and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B*, Class C* and Class Z shares are sold at net asset value. Using each
Series' initial net asset value of $10.00 per share, the maximum offering
price of each Series' shares is as follows:
<TABLE>
<CAPTION>
DEVELOPING
LATIN AMERICA MARKETS
EQUITY FUND EQUITY FUND
------------- -----------
<S> <C> <C>
CLASS A
Net asset value and redemption price per Class
A share....................................... $10.00 $10.00
Maximum sales charge (5% of offering price).... .53 .53
------ ------
Maximum offering price to public............... $10.53 $10.53
====== ======
CLASS B
Net asset value, offering price and redemption
price per Class B share*...................... $10.00 $10.00
====== ======
CLASS C
Net asset value, offering price and redemption
price per Class C share*...................... $10.00 $10.00
====== ======
CLASS Z
Net asset value, offering price and redemption
price per Class Z share....................... $10.00 $10.00
====== ======
</TABLE>
---------
*Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions. See "Shareholder
Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in either Prospectus.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of a Series
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the relevant Prospectus.
B-19
<PAGE>
An eligible group of related Series investors includes any combination of
the following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefits plans of a company controlled by an
individual.
In addition, an eligible group of related Series investors may include an
employer (or group of related employers) and one or more retirement or group
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that
employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be
granted subject to confirmation of the investor's holdings. The Combined
Purchase and Cumulative Purchase Privilege does not apply to individual
participants in any retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of the Series and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) to determine the reduced sales charge. However, the value of shares
held directly with the Transfer Agent and through Prudential Securities will
not be aggregated to determine the reduced sales charge. All shares must be
held either directly with the Transfer Agent or through Prudential Securities.
The value of existing holdings for purposes of determining the reduced sales
charge is calculated using the maximum offering price (NAV plus maximum sales
charge) as of the previous business day. See "How the Fund Values its Shares"
in either Prospectus.
The Distributor must be notified at the time of purchase that the
shareholder is entitled to a reduced sales charge. The reduced sales charges
will be granted subject to confirmation of the investors' holdings. Rights of
Accumulation are not available to individual participants in any retirement or
group plans.
LETTER OF INTENT. Reduced sales charges are also available to investors (or
an eligible group of related investors), including retirement and group plans,
who enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of a Series and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may
also qualify to purchase Class A shares at NAV by entering into a Letter of
Intent whereby they agree to enroll, within a thirteen-month period, a
specified number of eligible employees or participants (Participant Letter of
Intent).
For purposes of the Investment Letter of Intent, all shares of the Series
and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) which were
previously purchased and are still owned are also included in determining the
applicable reduction. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly
with the Transfer Agent or through Prudential Securities.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number
of investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the
reduced sales charge applicable to the amount represented by the goal, as if
it were a single investment. In the case of a Participant Letter of Intent,
each investment made during the period will be made at net asset value.
Escrowed Class A shares totaling 5% of the dollar amount of the Letter of
Intent will be held by the Transfer Agent in the name of the purchaser, except
in the case of retirement and group plans where the employer or plan sponsor
will be responsible for paying any applicable sales charge. The effective date
of an Investment Letter of Intent (except in the case of retirement and group
plans) may be back-dated up to 90 days, in order that any investments made
during this 90-day period, valued at the purchaser's cost, can be applied to
the fulfillment of the Letter of Intent goal.
B-20
<PAGE>
The Investment Letter of Intent does not obligate the investor to purchase,
nor a Series to sell, the indicated amount. Similarly, the Participant Letter
of Intent does not obligate the retirement or group plan to enroll the
indicated number of eligible employees or participants. In the event the
Letter of Intent goal is not achieved within the thirteen-month period, the
purchaser (or the employer or plan sponsor, in the case of any retirement or
group plan) is required to pay the difference between the sales charge
otherwise applicable to the purchases made during this period and sales
charges actually paid. Such payment may be made directly to the Distributor
or, if not paid, the Distributor will liquidate sufficient escrowed shares to
obtain such difference. Investors electing to purchase Class A shares of a
Series pursuant to a Letter of Intent should carefully read such Letter of
Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to
individual participants in any retirement or group plans.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The contingent deferred sales charge is waived under circumstances described
in each Series' Prospectus. See "Shareholder Guide--How to Sell Your Shares--
Waiver of the Contingent Deferred Sales Charges--Class B Shares" in either
Prospectus. In connection with these waivers, the Transfer Agent will require
you to submit the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate
or, in the case of a trust, a copy of the
grantor's death certificate, plus a copy of
the trust agreement identifying the grantor.
Disability--An individual will A copy of the Social Security Administration
be considered disabled if he or award letter or a letter from a physician on
she is unable to engage in any the physician's letterhead stating that the
substantial gainful activity by shareholder (or, in the case of a trust, the
reason of any medically grantor) is permanently disabled. The letter
determinable physical or mental must also indicate the date of disability.
impairment which can be expected
to result in death or to be of
long-continued and indefinite
duration.
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Distribution from an IRA or A copy of the distribution form from the
403(b) Custodial Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is taking
a normal distribution--signed by the
shareholder.
Distribution from Retirement A letter signed by the plan
Plan administrator/trustee indicating the reason
for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or
the plan administrator/trustee on company
letterhead indicating the amount of the
excess and whether or not taxes have been
paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of a Series' 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 stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for the issuance of a certificate. Each Series makes
available to its shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the applicable
Series at the NAV per share at the close of business on the record date. An
investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or
B-21
<PAGE>
distribution may reinvest such distribution at NAV by returning the check or
the proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the net asset value per share next determined after
receipt of the check or proceeds by the Transfer Agent. Such shareholder will
receive credit for any contingent deferred sales charge paid in connection
with the amount of proceeds being reinvested.
EXCHANGE PRIVILEGE
Each Series makes available to its shareholders the privilege of exchanging
their shares of such Series 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 the relative NAV next determined after
receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares
of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of a Series may exchange their Class A shares for
Class A 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 Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A Shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of a Series may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds. 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 an 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 first day of the month after the initial
purchase, rather than the date of the exchange.
Class B and Class C shares of a Series 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 by excluding the time such shares were held in the money market
fund. In order to minimize the period of time in which shares are subject to a
CDSC, shares exchanged out of the money market fund will be exchanged on the
basis of their remaining holding periods, with the longest remaining holding
periods being transferred first. In measuring the time period shares are held
in a money market fund and "tolled" for purposes of calculating the CDSC
holding period, exchanges are deemed to have been made on the last day of the
month. Thus, if shares are exchanged into a Series from a money market fund
during the month (and are held in a Series at the end of 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.
B-22
<PAGE>
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 a Series, respectively, without subjecting such shares to any CDSC upon the
exchange. 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, respectively, of
other funds without being subject to any CDSC.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including either
Series, 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 beginning in 2011, the cost of four years at
a private college could reach $210,000 and over $90,000 at a public
university./1/
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals./2/
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 years.............................. $ 110 $ 165 $ 220 $ 275
20 years.............................. 176 264 352 440
15 years.............................. 296 444 592 740
10 years.............................. 555 833 1,110 1,388
5 years.............................. 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
- ---------
/1/Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-1994 academic year.
/2/The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of a Series.
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.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of a Series monthly by authorizing his or her bank account
or Prudential Securities account (including a Command Account) to be debited
to invest specified dollar amounts in shares of such Series. The investor's
bank must be a member of the Automatic Clearing House System. Stock
certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Distributor or the Transfer Agent. Such withdrawal plan provides for monthly
or quarterly checks in any amount, except as provided below, up to the value
of the shares in the shareholder's account. Withdrawals of Class B or Class C
shares may be subject to a CDSC. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in either Series' Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and
(iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in
B-23
<PAGE>
additional full and fractional shares at NAV on shares held under this plan.
See "Shareholder Investment Account-- Automatic Reinvestment of Dividends
and/or Distributions" above.
The Distributor and the Transfer Agent act as agents for the shareholder in
redeeming sufficient full and fractional shares to provide the amount of the
periodic withdrawal payment. The systematic withdrawal plan may be terminated
at any time, and the Distributor reserves the right to initiate a fee of up to
$5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be generally recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charges applicable to
(i) the purchase of Class A shares and (ii) the withdrawal of Class B and
Class C shares. Each shareholder should consult his or her own tax adviser
with regard to the tax consequences of the systematic withdrawal plan,
particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred 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 Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, an 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING/1/
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 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 a Series 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, a Series 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, e.g., to seek greater
diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. A Series
may waive or reduce its 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, individuals should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
B-24
<PAGE>
NET ASSET VALUE
Under the Investment Company Act, with respect to securities for which
market quotations are not readily available, the Board of Trustees is
responsible for determining in good faith the fair value of securities of the
Fund. In accordance with procedures adopted by the Board of Trustees, the
value of investments listed on a securities exchange and NASDAQ National
Market System securities (other than options on stock and stock indices) are
valued at the last sale price on the day of valuation or, if there was no sale
on such day, the mean between the last bid and asked prices on such day, as
provided by a pricing service or principal market maker. Corporate bonds
(other than convertible debt securities) and U.S. Government securities that
are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed to be over-the-counter,
are valued on the basis of valuations provided by a pricing service which uses
information with respect to transactions in bonds, quotations from bond
dealers, agency ratings, market transactions in comparable securities and
various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the last reported bid and
asked prices provided by principal market makers. Options on stock and stock
indices traded on an exchange are valued at the mean between the most recently
quoted bid and asked prices on the respective exchange and futures contracts
and options thereon are valued at their last sale prices as of the close of
trading on the applicable commodities exchange. 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 forward
currency exchange 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 the Manager of
Subadviser 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 Subadviser (or Valuation
Committee or Board of Trustees), does not represent fair value, are valued by
the Valuation Committee or Board in consultation with the Manager and
Subadviser, under procedures established by the Board of Trustees.
Short-term debt securities are valued at cost, with interest accrued or
discount amortized to the date of maturity, if their original maturity was 60
days or less, unless this is determined by the Board of 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.
A Series will compute its net asset value at 4:15 P.M., New York time, on
each day the New York Stock Exchange is open for trading except on days on
which no orders to purchase, sell or redeem such Series' shares have been
received or days on which changes in the value of such Series' portfolio
securities do not affect net asset value. In the event the New York Stock
Exchange closes early on any business day, the net asset value of a Series'
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.
Net asset value (NAV) is calculated separately for each class of each
Series. The NAV of Class B and Class C shares of a Series will generally be
lower than the NAV of Class A shares and Class Z shares of such Series 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 of a Series will generally be
higher than the NAV of Class A, Class B or Class C shares of such Series as a
result of the fact that Class Z shares are not subject to any distribution or
service fee. It is expected, however, that the NAV per share of each class
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 Series has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves a Series (but not its shareholders) from paying federal income
tax on income which is distributed to shareholders and permits net capital
gains of a Series (i.e., the excess of net long-term capital gains over net
short-term capital losses) to be treated as long-term capital gains of the
shareholders, regardless of how long shares in such Series are held.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a Series' annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans,
and gains from the sale or other disposition of securities or 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
B-25
<PAGE>
in such securities or currencies; (b) a Series diversifies its holdings so
that, at the end of each quarter of the taxable year, (i) at least 50% of the
value of a Series' 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 assets of such Series and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities) and (c) a Series distribute to its
shareholders at least 90% of its net investment income and net short-term
gains (i.e., the excess of net short-term capital gains over net long-term
capital losses) in each year.
The Fund is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. Each
Series 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, each Series must distribute during the
calendar year any undistributed ordinary income and undistributed capital gain
net income from the prior year or the twelve-month period ending on October 31
of such prior calendar year, respectively. To the extent it does not meet
these distribution requirements, a Series will be subject to a non-deductible
4% excise tax on the undistributed amount. For purposes of this excise tax,
income on which a Series pays income tax is treated as distributed.
Gains or losses on sales of securities by a Series will generally 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 a Series 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 generally be treated
as gains and losses from the sale of securities. If an option written by a
Series on securities lapses or is terminated through a closing transaction,
such as a repurchase by such Series of the option from its holder, such Series
will generally realize capital gain or loss. If securities are sold by a
Series pursuant to the exercise of a call option written by it, such Series
will include the premium received in the sale proceeds of the securities
delivered in determining the amount of gain or loss on the sale. Certain of a
Series' transactions may be subject to wash sale, short sale and straddle
provisions of the Internal Revenue Code which may, among other things, require
such Series to defer recognition of losses. In addition, debt securities
acquired by a Series may be subject to original issue discount and market
discount rules which, respectively, may cause such Series to accrue income in
advance of the receipt of cash with respect to interest or cause gains to be
treated as ordinary income.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which a
Series may invest. See "Investment Objective and Policies." These investments
will generally constitute Section 1256 contracts and will be required to be
"marked to market" for federal income tax purposes at the end of the Series'
taxable year; that is, treated as having been sold at market value. Except
with respect to certain forward foreign currency exchange contracts, sixty
percent of any gain or loss recognized on such deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
Forward currency contracts, options and futures contracts entered into by a
Series may create "straddles" for federal income tax purposes. Positions which
are part of a straddle will be subject to certain wash sale and short sale
provisions of the Internal Revenue Code. In the case of a straddle, a Series
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 such
Series.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Series accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time
such Series actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also 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 a Series' investment company
taxable income available to be distributed to its shareholders as ordinary
income, rather than increasing or decreasing the amount of a Series' net
capital gain. If Section 988 losses exceed other investment company taxable
income during a taxable year, a Series would not be able to make any ordinary
dividend distributions, or distributions made before the losses were realized
would be recharacterized as a return of capital to shareholders, rather than
as an ordinary dividend, reducing each shareholder's basis in his or her
Series shares.
Shareholders of a Series 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 net asset value of a share of
such Series on the reinvestment date.
B-26
<PAGE>
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by
the per share amount of the dividends. Furthermore, such dividends, although
in effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of a Series, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of a Series 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.
If a shareholder who acquires shares of a Series sells or otherwise disposes
of such shares within 90 days of acquisition, certain sales charges incurred
in acquiring such shares may not be included in the basis of such shares for
purposes of calculating gain or loss realized upon such sale or disposition.
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 of such Series 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 of a Series. See "Net
Asset Value."
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a
nominee or fiduciary) who is a nonresident alien individual, a foreign
corporation or a foreign partnership (foreign shareholder) are subject to a
30% (or lower treaty rate) withholding tax upon the gross amount of the
dividends unless the dividends are effectively connected with a U.S. trade or
business conducted by the foreign shareholder. Capital gain dividends paid to
a foreign shareholder generally are 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.
Income received by a Series from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which a Series will be subject, since the amount of a
Series' assets to be invested in various countries is not known.
If a Series is liable for foreign income taxes, and if more than 50% of the
value of such Series' assets consists of securities of foreign corporations,
such Series may elect to "pass through" to such Series' shareholders the
amount of foreign income taxes paid by such Series. If a Series elects to
"pass through" the foreign taxes, shareholders will be required to: (i)
include in gross income (in addition to taxable dividends actually received)
their pro rata share of the foreign income taxes paid by such Series; and (ii)
treat their pro rata share of foreign income taxes as paid by them.
Shareholders will then be permitted either to deduct their pro rata share of
foreign income taxes in computing their taxable income or to claim a foreign
tax credit against U.S. income taxes. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Foreign shareholders
may not deduct or claim a credit for foreign tax unless the dividends paid to
them by a Series are effectively connected with a U.S. trade or business.
Accordingly, a foreign shareholder may recognize additional taxable income as
a result of a Series' election to "pass through" the foreign income taxes to
shareholders.
The amount of foreign taxes for which a shareholder may claim a credit in
any year will generally be subject to a separate limitation for "passive
income," which includes, among other things, dividends, interest and certain
foreign currency gains. Gain from the sale of a security and gain or loss from
a Section 988 transaction which is treated as ordinary income or loss (or
would have been so treated absent an election by the applicable Series) will
be treated as derived from sources within the United States, potentially
reducing the amount allowable as a credit under the limitation.
Each shareholder will be notified within 60 days after the close of the
Series' taxable year whether the foreign taxes paid by the applicable Series
will "pass through" for that year and, if so, such notification will designate
(a) the shareholder's portion of the foreign taxes paid by such Series and (b)
the portion of the dividend which represents income derived from foreign
sources.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a
Series.
B-27
<PAGE>
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. A Series may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the applicable Prospectus.
Average annual total return is computed according to the following formula:
P(1+T) to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal
or state income taxes that may be payable upon redemption.
AGGREGATE TOTAL RETURN. A Series may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
applicable Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in a Series and is computed according to the following formula:
ERV-P
-----
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year periods.
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.
YIELD. A Series 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. This yield will be computed by dividing a Series' net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of the period. Yield is calculated
according to the following formula:
a -- b
________
YIELD = 2 [( +1) to the 6th power - 1]
cd
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.
Yield fluctuates and an annualized yield quotation is not a representation
by a Series as to what an investment in such Series will actually yield for
any given period.
B-28
<PAGE>
From time to time, the performance of a Series may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of
inflation./1/
BAR GRAPH
A LOOK AT PERFORMANCE OVER THE LONG-TERM
AVERAGE ANNUAL RETURNS
1/1/26 - 12/31/97
COMMON STOCKS LONG-TERM GOV'T BONDS INFLATION
11.0% 5.2% 3.1%
/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1997
Yearbook", (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). All rights reserved. Common stock returns are based on the
Standard & Poor's 500 Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly used
indicator of broad stock price movements. This chart is for illustrative
purposes only, and is not intended to represent the performance of any
particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and in that capacity maintains certain financial and accounting books
and records pursuant to an agreement with the Fund. Subcustodians provide
custodial services for the Fund's foreign assets held outside the United
States. See "How the Fund is Managed--Custodian and Transfer and Dividend
Disbursing Agent" in the applicable Prospectus.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of each
Series. It is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Series, 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, a new account set-up fee for each manually established
account and a monthly inactive zero balance account fee per shareholder
account. PMFS is also reimbursed for its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communication expenses
and other costs.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Series' independent accountants and in that capacity audits each
Series' annual financial statements.
B-29
<PAGE>
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 16,
1998
--------
<S> <C>
ASSETS
Cash.................................................................. $ 50,000
Deferred registration fees............................................ 165,000
Deferred organization costs (Note 1).................................. 75,000
--------
Total assets........................................................ 290,000
--------
LIABILITIES
Deferred organization costs payable (Note 1).......................... 75,000
Deferred registration fees payable.................................... 165,000
--------
Total liabilities................................................... 240,000
========
Net Assets (Note 1)
Applicable to 5,000 shares of beneficial interest.................... $ 50,000
========
Calculation of Offering Price
Class A:
Net asset value and redemption price per Class A share............... $ 10.00
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
Maximum sales charge (5.0% of offering price)........................ .53
--------
Offering price to public............................................. $ 10.53
========
Class B:
Net asset value, offering price and redemption price per Class B
share............................................................... $ 10.00
========
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
Class C:
Net asset value, offering price and redemption price per Class C
share............................................................... $ 10.00
========
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
Class Z:
Net asset value, offering price and redemption price per Class Z
share............................................................... $ 10.00
========
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
</TABLE>
B-30
<PAGE>
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 16,
1998
--------
<S> <C>
ASSETS
Cash.................................................................. $50,000
Deferred registration fees............................................ 165,000
Deferred organization costs (Note 1).................................. 75,000
-------
Total assets........................................................ 290,000
-------
LIABILITIES
Deferred organization costs payable (Note 1).......................... 75,000
Deferred registration fees payable.................................... 165,000
-------
Total liabilities................................................... 240,000
-------
Net Assets (Note 1)
Applicable to 5,000 shares of beneficial interest.................... $50,000
=======
Calculation of Offering Price
Class A:
Net asset value and redemption price per Class A share............... $ 10.00
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
Maximum sales charge (5.0% of offering price)........................ .53
-------
Offering price to public............................................. $ 10.53
=======
Class B:
Net asset value, offering price and redemption price per Class B
share............................................................... $ 10.00
=======
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
Class C:
Net asset value, offering price and redemption price per Class C
share............................................................... $ 10.00
=======
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
Class Z:
Net asset value, offering price and redemption price per Class Z
share............................................................... $ 10.00
=======
($12,500 / 1,250 shares of beneficial interest issued and outstand-
ing)
</TABLE>
B-31
<PAGE>
PRUDENTIAL DEVELOPING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Prudential Developing Markets Fund (the Fund), consisting of two
series: Prudential Developing Markets Equity Fund and Prudential Latin America
Equity Fund, which was organized as a business trust in Delaware on October
24, 1997, is an open-end, diversified management investment company. The Fund
has had no significant operations other than the issuance of 1,250 shares each
of Class A, Class B, Class C and Class Z shares for each series of beneficial
interest for $100,000 on June 16, 1998 to Prudential Investments Fund
Management LLC (PIFM).
Costs incurred and expected to be incurred in connection with the
organization of the Fund will be paid initially by PIFM and will be repaid to
PIFM upon commencement of investment operations. Organizational costs will be
deferred and amortized over the period of benefit not to exceed 60 months from
the date the Fund commences investment operations. If any of the initial
shares of the Fund are redeemed by PIFM during the period of amortization of
organization expenses, the redemption proceeds will be reduced by the pro rata
amount of unamortized organization expenses based on the number of initial
shares being redeemed to the number of the initial shares outstanding.
Registration fees will be deferred and amortized over a period not to exceed
12 months.
NOTE 2. AGREEMENTS. The Fund has entered into a management agreement with
PIFM.
The management fee paid PIFM will be computed daily and payable monthly, at
an annual rate of 1.25 of 1% of the average daily net assets of the Fund.
The Fund has entered into a distribution agreement with Prudential
Securities Incorporated (Prudential Securities or the Distributor) until July
1, 1998 for distribution of the Fund's shares. On July 1, 1998, Prudential
Investment Management Services LLC (the Distributor), will become the Fund's
Distributor.
Pursuant to separate Plans of Distribution (the Class A Plan, the Class B
Plan and the Class C Plan, collectively the Plans) adopted by the Fund under
Rule 12b-1 of the Investment Company Act of 1940, the Distributor incurs the
expenses of distributing the Fund's Class A, Class B and Class C shares. These
expenses include commissions and account servicing fees paid to, or on account
of financial advisers of Prudential Securities and Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, commissions paid to, or on
account of, other broker-dealers or certain financial institutions which have
entered into agreements with the Distributor, advertising expenses, the cost
of printing and mailing prospectuses to potential investors and indirect and
overhead costs of Prudential Securities and Prusec associated with the sale of
Fund shares, including lease, utility, communications and sales promotion
expenses.
Pursuant to the Class A Plan, the Fund will compensate the Distributor for
its expenses with respect to Class A shares at an annual rate of up to .30 of
1% of the average daily net asset value of the Class A shares. The Distributor
has agreed to limit its distribution-related fees payable under the Class A
Plan to .25 of 1% of the average daily net asset value of the Class A shares
for the fiscal period ending May 31, 1999.
Pursuant to the Class B and Class C Plans, the Fund compensates the
Distributor for its distribution-related expenses with respect to the Class B
and Class C shares at an annual rate of 1% of the average daily net assets of
the Class B and C shares.
The Distributor incurs the expense of distributing the Fund's Class Z shares
under a distribution agreement with the Fund, none of which is paid for or
reimbursed by the Fund.
Prudential Mutual Fund Services LLC, a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent.
PIFM, PIMS and Prudential Securities are indirect wholly-owned subsidiaries
of The Prudential Insurance Company of America.
B-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
Prudential Developing Markets Fund:
In our opinion, the accompanying statements of assets and liabilities presents
fairly, in all material respects, the financial position of Prudential
Developing Markets Equity Fund and Prudential Latin America Equity Fund (the
two series constituting Prudential Developing Markets Fund, collectively
referred to hereafter as the "Fund") at June 16, 1998, in conformity with
generally accepted accounting principles. These 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 generally accepted
auditing standards 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 statement, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
June 16, 1998
B-33
<PAGE>
APPENDIX I--DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE, INC.
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e. (they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issuances may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
PRIME-1: Issues rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations.
PRIME-2: Issues rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
I-1
<PAGE>
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB: Debt rated B has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B-rating.
CC: The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for issues
designated A-1.
I-2
<PAGE>
APPENDIX II--GENERAL INVESTMENT INFORMATION
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.
II-1
<PAGE>
APPENDIX III--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.
The following chart shows the long-term performance of various asset classes
and the rate of inflation.
EDGAR Representation of Chart
Value of $1.00 invested
on 1/1/26 through 12/31/97.
<TABLE>
<S> <C>
Small Stocks $5,519.97
Common Stocks $1,828.33
Long-Term Bonds $39.07
Treasury Bills $14.25
Inflation $9.02
</TABLE>
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago, Illinois (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. 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 any gains. Bond returns are due mainly to reinvesting interest. Also, stock
prices are usually 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 U.S. government as to the
timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
III-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 1987
through 1997. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of a Series or of any sector in which a
Series invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees
of a mutual fund. See "Fund Expenses" in the applicable prospectus. The net
effect of the deduction of the operating expenses of a mutual fund on these
historical total returns, including the compounded effect over time, could be
substantial.
Historical Total Returns of Different Bond Market Sectors
<TABLE>
<CAPTION>
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS/1/ 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4% 2.7% 9.6%
- -------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES/2/ 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8% 5.4% 9.5%
- -------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE BONDS/3/ 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3% 3.3% 10.2%
- -------------------------------------------------------------------------------------------------------------
U.S. HIGH YIELD
CORPORATE BONDS/4/ 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2% 11.4% 12.8%
- -------------------------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS/5/ 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% -6.0% 19.6% 4.1% (4.3%)
- -------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST AND LOWEST 33.2% 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1%
RETURNS PERCENT
- -------------------------------------------------------------------------------------------------------------
</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.
/4/ LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one
year.
/5/ SALOMON BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
III-2
<PAGE>
This chart illustrates the This chart shows the growth of a
performance of major world stock hypothetical $10,000 investment made
markets for the period from in the stocks representing the S&P
12/31/85 through 12/31/97. It does 500 stock index with and without
not represent the performance of reinvested dividends.
any Prudential Mutual Fund. (12/31/69-12/31/97)
FOREIGN STOCK MARKETS HAVE OFTEN
OUTPERFORMED THOSE IN THE U.S.
Average Annual Total Returns of
Major World
Stock Markets (12/31/85-12/31/97)
Netherlands 20.5%
Spain 20.4%
Sweden 20.4%
Hong Kong 19.7%
Belgium 19.5% CHART
Switzerland 17.9%
USA 17.1%
UK 16.6%
France 15.6%
Germany 12.1%
Austria 9.6%
Japan 6.6%
Source: Morgan Stanley Capital Source: Stocks, Bonds, Bills, and
International (MSCI) based on data Inflation 1997 Yearbook, Ibbotson
retrieved from Lipper Analytical Associates, Chicago (annually
New Application (LANA) as of updates work by Roger G. Ibbotson
12/31/97. Used with permission. and Rex A. Sinquefield). Used with
Morgan Stanley Country indices are permission. All rights reserved.
unmanaged indices which include This chart is used for illustrative
those stocks making up the largest purposes only and is not intended to
two-thirds of each country's total represent the past, present or
stock market capitalization. future performance of any Prudential
Returns reflect the reinvestment Mutual Fund. Common stock total
of all distributions. This chart return is based on the Standard &
is for illustrative purposes only Poor's 500 Stock Index, a market-
and is not indicative of the past, value-weighted index made up of 500
present or future performance of of the largest stocks in the U.S.
any specific investment. Investors based upon their stock market value.
cannot invest directly in stock Investors cannot invest directly in
indices. indices.
---------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY
REGION
World Total: $12.7 Trillion
PIE CHART
EUROPE PACIFIC BASIN CANADA U.S.
32.1% 15.6% 2.5% 49.8%
Source: Morgan Stanley Capital
International, December 31, 1997.
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 1,600 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.
III-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1997)
CHART
- ---------------------------------------
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. The chart illustrates
the historical yield of the long-term U.S. Treasury Bond from 1926-1996.
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.
III-4
<PAGE>
APPENDIX IV--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating
to the Prudential Mutual Funds. See "Management of the Fund--Manager" in
either Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1996 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC/1/ are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December
31, 1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs almost 81,000
persons worldwide, and maintains a sales force of approximately 13,000 agents
and 5,600 financial advisors. Prudential is a major issuer of annuities,
including variable annuities. Prudential seeks to develop innovative products
and services to meet consumer needs in each of its business areas. Prudential
uses the rock of Gibraltar as its symbol. The Prudential rock is a recognized
brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 50 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 22 million life insurance policies in force today with a face
value of $1 trillion. Prudential has the largest capital base ($12.1 billion)
of any life insurance company in the United States. Prudential provides auto
insurance for approximately 1.6 million cars and insures approximately 1.2
million homes.
Money Management. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of December 31, 1996, Prudential had more than $332 billion in
assets under management. Prudential Investments, a business group of
Prudential (of which Prudential Mutual Funds is a key part) manages over $190
billion in assets of institutions and individuals. In Pensions & Investments,
May 12, 1996, Prudential was ranked third in terms of total assets under
management.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers
and agents across the United States./2/
Healthcare. Over two decades ago, Prudential introduced the first federally-
funded, for-profit HMO in the country. Today, approximately 4.6 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $4 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of December 31, 1997 Prudential Investments Fund Management is the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser
in national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in
surveys conducted by national and regional publications and media
organizations such as The Wall Street Journal, The New York Times, Barron's
and USA Today.
- ---------
/1/Prudential Investments, a business group of PIC, serves as the Subadviser to
substantially all of the Prudential Mutual Funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc., Nicholas-
Applegate Capital Management as the subadviser to Nicholas-Applegate Fund,
Inc., Jennison Associates Capital Corp. as the subadviser to Prudential
Jennison Series Fund, Inc. and Prudential Active Balanced Fund, a portfolio
of Prudential Index Series Fund, Mercator Asset Management LP as the
Subadviser to International Stock Series, a portfolio of Prudential World
Fund, Inc. and BlackRock Financial Management, Inc. as the subadviser to The
BlackRock Government Income Trust. There are multiple subadvisers for The
Target Portfolio Trust.
/2/Asof December 31, 1996.
IV-1
<PAGE>
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual
fund in both bull and bear markets as well as a fund's risk profile.
Prudential Equity Fund is managed with a "value" investment style by PIC. In
1995, Prudential Securities introduced Prudential Jennison Fund, a growth-
style equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of
its kind in the country) along with 100 or so other high yield bonds, which
may be considered for purchase./3/ Non-investment grade bonds, also known as
junk bonds or high yield bonds, are subject to a greater risk of loss of
principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential
mutual fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions
in foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data./4/ On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing
over 3.8 million shares with nearly 200 different firms. Prudential Mutual
Funds' bond trading desks traded $157 million in government and corporate
bonds on an average day. That represents more in daily trading than most bond
funds tracked by Lipper even have in assets./5/ Prudential Mutual Funds' money
market desk traded $3.2 billion in money market securities on an average day,
or over $800 billion a year. They made a trade every 3 minutes of every
trading day. In 1994, the Prudential Mutual Funds effected more than 40,000
trades in money market securities and held on average $20 billion of money
market securities./6/
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On
an annual basis, that represents approximately 1.8 million telephone calls
answered.
- ---------
/3/As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
/4/Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
/5/Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage Funds.
/6/As of December 31, 1994.
IV-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for
its clients approximated $235 billion. During 1997, over 29,000 new customer
accounts were opened each month at Prudential Securities./7/
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program.
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey.
Three Prudential Securities analysts were ranked as first-team finishers./8/
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architects SM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis
system that compares different mutual funds.
Standard & Poor's rates Prudential Securities Incorporated BBB+ with a
"Stable Outlook."
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ---------
/7/As of December 31, 1994.
/8/On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
IV-3
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) Financial statements included in the Prospectus constituting Part A
of the Registration Statement:
None.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of the Registration Statement:
(a) Statement of Assets and Liabilities with accompanying footnotes.*
(b) Report of Independent Accountants.*
- ---------
* Filed herewith.
(B) EXHIBITS:
1.(a) Declaration of Trust.+
2.By-Laws of the Registrant.+
3.Not applicable.
4.Instruments defining rights of shareholders.*
5.(a) Management Agreement between the Registrant and Prudential
Investments Fund Management LLC.*
(b) Subadvisory Agreement between Prudential Investments Fund
Management LLC* and The Prudential Investment Corporation.*
6.(a) Distribution Agreement between the Registrant and Prudential
Securities Incorporated.*
(b) Distribution Agreement between the Registrant and Prudential
Investments Management Services LLC.*
(c) Form of Dealer Agreement.*
7.Not applicable.
8.Custodian Contract between the Registrant and State Street Bank and
Trust Company.*
9.Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services LLC.*
10.Opinion of Morris, Nichols, Arsht & Tunnell.+
11.Consent of Independent Accountants.*
12.Not applicable.
13.Purchase Agreement.*
14.Not applicable.
15.(a) Distribution and Service Plan for Class A shares.*
(b) Distribution and Service Plan for Class B shares.*
- ---------
*Filed herewith.
+ Incorporated by reference to the Registrant's Initial Registration Statement
on Form N-1A, filed with the Commission on or about April 17, 1998 (File No.
33-50373).
C-1
<PAGE>
(c) Distribution and Service Plan for Class C shares.*
(d) Amended Distribution and Service Plan for Class A, B and C
shares.*
16.Not applicable.
18.Rule 18f-3 Plan.*
- ---------
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of May 31, 1998, the Registrant had no shareholders.
ITEM 27. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act) and pursuant to Article XI of the Fund's By-
Laws (Exhibit 2 to the Registration Statement), officers, trustees, employees
and agents of the Registrant will not be liable to the Registrant, any
stockholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions. As permitted by Section 17(i) of the 1940 Act, pursuant to Section
10 of the Distribution Agreement (Exhibits 6(a) and (b) 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 directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.
Section 8 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and 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 Sections 17(h) and 17(i)
of such Act remains in effect and is consistently applied.
C-2
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(I) PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
See "How the Fund Is Managed-Manager" in each Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of 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, New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
<S> <C> <C>
Frank W. Giordano Executive Vice President, Executive Vice President, Secretary and General Counsel,
Secretary and PIFM; Senior Vice President, Prudential Securities Incorporated
General Counsel (Prudential Securities)
Robert F. Gunia Executive Vice President Comptroller, Prudential Investments; Executive Vice President and
and Treasurer Treasurer, PIFM; Senior Vice President, Prudential Securities
Neil A. McGuinness Executive Vice President Executive Vice President and Director of Marketing, PMF&A;
Executive Vice President, PIFM
Brian Storms Officer-in-Charge, President, President, Prudential Mutual Funds & Annuities (PMF&A);
Chief Executive Officer and Officer-in-Charge, President, Chief Executive Officer and
Chief Operating Officer Chief Operating Officer, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice President, PIFM
</TABLE>
(II) THE PRUDENTIAL INVESTMENT CORPORATION (PIC)
See "How the Fund is Managed--Manager" in each Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential
President and Chief Executive Investments of The Prudential Insurance
Officer and Director Company of America (Prudential)
Jonathan M. Greene Senior Vice President and Director President--Investment Management of Prudential
Investments of Prudential; Senior Vice Presi-
dent and Director, PIC
John R. Strangfeld Vice President and Director President of Private Asset Management Group of
Prudential; Senior Vice President,
Prudential; Vice President and Director, PIC
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated is distributor for Command Money
Fund, Command Government Fund, Command Tax-Free Fund, The Global Total Return
Fund, Inc., Global Utility Fund, Inc., Prudential 20/20 Focus Fund, Nicholas-
Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund), Prudential
Balanced Fund, Prudential California Municipal Fund, Prudential Distressed
Securities Fund, Inc., Prudential Diversified Bond Fund, Inc., Prudential
Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global Genesis
Fund, Inc., Prudential Global Limited Maturity Fund, Inc., Prudential
Government Income Fund, Inc., Prudential Government Securities Trust,
Prudential High Yield Fund, Prudential High Yield Total Return Fund, Inc.,
Prudential Index Series Fund, Prudential Institutional Liquidity Portfolio,
Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
International Bond Fund, Inc., Prudential Jennison Series Fund, Inc.,
Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets, Inc., Prudential
Mortgage Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund, Prudential National
Municipals Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential
Pacific Growth Fund, Inc., Prudential Small-Cap Quantum Fund, Inc., Prudential
Real Estate Securities Fund, Prudential Small Company Value Fund, Inc.,
Prudential Special Money
C-3
<PAGE>
Market Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-
Free Money Fund, Inc., Prudential Utility Fund, Inc., Prudential World Fund,
Inc., and The Target Portfolio Trust. Prudential Securities is also a
depositor for the following unit investment trusts:
The Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME* UNDERWRITER REGISTRANT
- ----- ------------- -------------
<S> <C> <C>
Alan D. Hogan........... Executive Vice President and Director None
William Horan........... Chief Financial Officer None
George A. Murray........ Executive Vice President and Director None
Leland B. Paton......... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff....... Executive Vice President, Chief Financial Officer and Director None
Vincent T. Pica, II..... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Hardwick Simmons........ Chief Executive Officer, President and Director None
Lee B. Spencer, Jr. .... Executive Vice President, Secretary, General Counsel and Director None
Brian Storms............ Director None
751 Broad Street
Newark, NJ 07102
</TABLE>
- ---------
* The address of each person named is One Seaport Plaza, New York, New York
10292.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171 The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey, 07102 the Registrant, Gateway Center
Three, Newark, New Jersey 07102, and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-
1(b)(4), (5), (6), (7), (9), (10) and (11) and 31a-1(d) and (f) will be kept
at Gateway Center Three 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 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--
Manager" and "How the Fund is Managed--Distributor" in each Prospectus and the
captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newark, and State of New Jersey, on
the 19th day of June, 1998.
PRUDENTIAL DEVELOPING MARKETS FUND
/s/ Richard A. Redeker
---------------------------------
(RICHARD A. REDEKER, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Edward D. Beach Trustee June 19, 1998
- ----------------------
EDWARD D. BEACH
/s/ Stephen C. Eyre Trustee June 19, 1998
- ----------------------
STEPHEN C. EYRE
/s/ Delayne D. Gold Trustee June 19, 1998
- ----------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Trustee June 19, 1998
- ----------------------
ROBERT F. GUNIA
/s/ Don G. Hoff Trustee June 19, 1998
- ----------------------
DON G. HOFF
/s/ Robert E. LaBlanc Trustee June 19, 1998
- ----------------------
ROBERT E. LABLANC
/s/ Mendel A. Melzer Trustee June 19, 1998
- ----------------------
MENDEL A. MELZER
/s/ Richard A. Redeker President and Trustee June 19, 1998
- ----------------------
RICHARD A. REDEKER
/s/ Robin B. Smith Trustee June 19, 1998
- ----------------------
ROBIN B. SMITH
/s/ Stephen Stoneburn Trustee June 19, 1998
- ----------------------
STEPHEN STONEBURN
/s/ Nancy H. Teeters Trustee June 19, 1998
- ----------------------
NANCY H. TEETERS
/s/ Grace C. Torres Treasurer and June 19, 1998
- ---------------------- Principal Financial and
GRACE C. TORRES Accounting Officer
</TABLE>
C-5
<PAGE>
PRUDENTIAL DEVELOPING MARKETS FUND
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
-------------- ----------- -----------
<C> <S> <C>
1(a) Declaration of Trust.+ --
2 By-Laws of the Registrant.+ --
3 Not applicable --
4 Instruments defining rights of shareholders.*
5(a) Management Agreement between the Registrant and
Prudential Investments Fund Management LLC.*
5(b) Subadvisory Agreement between Prudential
Investments Fund Management LLC* and The
Prudential Investment Corporation.*
6(a) Distribution Agreement between the Registrant and --
Prudential Securities Incorporated.*
6(b) Distribution Agreement between the Registrant and
Prudential Investments Management Services LLC.*
6(c) Form of Dealer Agreement.* --
7 Not applicable. --
8 Custodian Contract between the Registrant and
State Street Bank and Trust Company.*
9 Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services
LLC.*
10 Opinion of Morris, Nichols, Arsht & Tunnell.+
11 Consent of Independent Accountants.*
12 Not applicable.
13 Purchase Agreement.* --
15(a) Distribution and Service Plan for Class A --
shares.*
15(b) Distribution and Service Plan for Class B --
shares.*
15(c) Distribution and Service Plan for Class C --
shares.*
15(d) Amended Distribution and Service Plan for Class
A, B and C shares.*
16 Not applicable.
18 Rule 18f-3 Plan.* --
</TABLE>
- ---------
*Filed herewith.
+ Incorporated by reference to the Registrant's Initial Registration Statement
on Form N-1A, filed with the Commission on or about April 17, 1998 (File No.
33-50373).
<PAGE>
Exhibit 99.4
<TABLE>
<CAPTION>
CLASS A
RECEIPT FOR SHARES
<S> <C>
========================== =============================
NUMBER SHARES OF BENEFICIAL INTEREST
========================== =============================
PRUDENTIAL FUND
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE STATE OF DELAWARE
----------------
ACCOUNT NO. ALPHA CODE CUSIP
----------------
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO EVIDENCE that
[SPECIMEN]
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, PAR VALUE OF $ . EACH OF THE
- -------------------------------PRUDENTIAL FUND
hereafter called the "Trust", transferable on the books of the Trust by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be held subject to the provisions of the
Declaration of Trust and By-Laws of the Trust and all amendments thereof, copies of which are on file with the Secretary of the
State of Delaware and at the office of the Trust, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in its name by its proper officers and to
be sealed with the Seal of the Trust.
SEAL
STATE OF DELAWARE Dated:
Secretary President
</TABLE>
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES LLC
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM |as tenants in common UNIF GIFT MIN ACT|.......Custodian.......
TEN ENT |as tenants by the entireties (Cust) (Minor)
JT TEN |as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as ....................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,........ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------..........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint..........................................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, .........................
...............................................
-------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
<TABLE>
<CAPTION>
CLASS B
RECEIPT FOR SHARES
<S> <C>
========================== =============================
NUMBER SHARES OF BENEFICIAL INTEREST
========================== =============================
PRUDENTIAL FUND
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE STATE OF DELAWARE
----------------
ACCOUNT NO. ALPHA CODE CUSIP
----------------
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO EVIDENCE that
[SPECIMEN]
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, PAR VALUE OF $ . EACH OF THE
- -------------------------------PRUDENTIAL FUND
hereafter called the "Trust", transferable on the books of the Trust by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be held subject to the provisions of the
Declaration of Trust and By-Laws of the Trust and all amendments thereof, copies of which are on file with the Secretary of the
State of Delaware and at the office of the Trust, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in its name by its proper officers and to
be sealed with the Seal of the Trust.
SEAL
STATE OF DELAWARE Dated:
Secretary President
</TABLE>
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES LLC
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM |as tenants in common UNIF GIFT MIN ACT|.......Custodian.......
TEN ENT |as tenants by the entireties (Cust) (Minor)
JT TEN |as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as ....................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,........ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------..........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint..........................................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, .........................
...............................................
-------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
<TABLE>
<CAPTION>
CLASS C
RECEIPT FOR SHARES
<S> <C>
========================== =============================
NUMBER SHARES OF BENEFICIAL INTEREST
========================== =============================
PRUDENTIAL FUND
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE STATE OF DELAWARE
----------------
ACCOUNT NO. ALPHA CODE CUSIP
----------------
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO EVIDENCE that
[SPECIMEN]
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, PAR VALUE OF $ . EACH OF THE
- -------------------------------PRUDENTIAL FUND
hereafter called the "Trust", transferable on the books of the Trust by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be held subject to the provisions of the
Declaration of Trust and By-Laws of the Trust and all amendments thereof, copies of which are on file with the Secretary of the
State of Delaware and at the office of the Trust, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in its name by its proper officers and to
be sealed with the Seal of the Trust.
SEAL
STATE OF DELAWARE Dated:
Secretary President
</TABLE>
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES LLC
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM |as tenants in common UNIF GIFT MIN ACT|.......Custodian.......
TEN ENT |as tenants by the entireties (Cust) (Minor)
JT TEN |as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as ....................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,........ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------..........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint..........................................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, .........................
...............................................
-------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
<TABLE>
<CAPTION>
CLASS Z
RECEIPT FOR SHARES
<S> <C>
========================== =============================
NUMBER SHARES OF BENEFICIAL INTEREST
========================== =============================
PRUDENTIAL FUND
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE STATE OF DELAWARE
----------------
ACCOUNT NO. ALPHA CODE CUSIP
----------------
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
THIS IS TO EVIDENCE that
[SPECIMEN]
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, PAR VALUE OF $ . EACH OF THE
- -------------------------------PRUDENTIAL FUND
hereafter called the "Trust", transferable on the books of the Trust by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be held subject to the provisions of the
Declaration of Trust and By-Laws of the Trust and all amendments thereof, copies of which are on file with the Secretary of the
State of Delaware and at the office of the Trust, to all of which the holder, by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in its name by its proper officers and to
be sealed with the Seal of the Trust.
SEAL
STATE OF DELAWARE Dated:
Secretary President
</TABLE>
COUNTERSIGNED:
PRUDENTIAL MUTUAL FUND SERVICES LLC
(NEW JERSEY)
TRANSFER AGENT,
BY
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM |as tenants in common UNIF GIFT MIN ACT|.......Custodian.......
TEN ENT |as tenants by the entireties (Cust) (Minor)
JT TEN |as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as ....................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received,........ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------..........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint..........................................................
................................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, .........................
...............................................
-------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
EXHIBIT 99.5(a)
PRUDENTIAL DEVELOPING MARKETS FUND
Management Agreement
--------------------
Agreement made this 1st day of June 1998, between Prudential Developing
Markets Fund, a Delaware business trust (the Fund), on behalf of the separate
investment series of the Fund identified on Schedule A of this Agreement as may
be amended from time to time (each investment series herein referred to as a
Series), 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 Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
1940 Act); and
WHEREAS, the Fund desires to retain the Manager to render or contract
to obtain as hereinafter provided investment advisory services to each Series
and the Fund also desires to avail itself of the facilities available to the
Manager with respect to the administration of its day to day business affairs,
and the Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of each
Series 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
<PAGE>
authorized to enter into an agreement with The Prudential Investment Corporation
(PIC) pursuant to which PIC shall furnish to each Series the investment advisory
services in connection with the management of each Series (the Subadvisory
Agreement). The Manager will continue to have responsibility for all investment
advisory services furnished pursuant to the Subadvisory Agreement.
2. Subject to the supervision of the Board of Trustees of the Fund,
the Manager shall administer each Series' business affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of each Series and the composition of each Series'
portfolio, including the purchase, retention and disposition thereof, in
accordance with each Series' 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 each Series' investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by each Series, 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 Fund and the Prospectus (hereinafter defined) of each
Series and with the instructions and directions of the Board of Trustees of
the Fund and will conform
2
<PAGE>
to and comply with the requirements of the 1940 Act and all other applicable
federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by each Series 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 Fund's Registration Statement and each Series' Prospectus
(hereinafter defined) or as the Board of Trustees may direct from time to
time. In providing each Series with investment supervision, it is
recognized that the Manager will give primary consideration to securing the
most favorable price and efficient execution. Consistent with this policy,
the Manager may consider the financial responsibility, research and
investment information and other services provided by brokers, dealers or
futures commission merchants who may effect or be a party to any such
transaction or other transactions to which other clients of the Manager may
be a party. It is understood that Prudential Securities Incorporated may be
used as principal broker for securities transactions but that no formula has
been adopted for allocation of the Fund's or a Series' investment
transaction business. It is also understood that it is desirable for each
Series 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
3
<PAGE>
cost to each Series than may result when allocating brokerage to other
brokers or futures commission merchants on the basis of seeking the most
favorable price and efficient execution. Therefore, the Manager is
authorized to pay higher brokerage commissions for the purchase and sale of
securities and futures contracts for each Series to brokers or futures
commission merchants who provide such research and analysis, subject to
review by the Fund'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 each Series 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 each Series and to such other clients.
(d) The Manager shall maintain all books and records with respect to
each Series' portfolio transactions and shall render to the Fund's Board of
Trustees
4
<PAGE>
such periodic and special reports as the Board may reasonably request.
(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Fund with respect to each Series (including
those being maintained by the Fund's Custodian).
(f) The Manager shall provide to the Fund's Custodian on each business
day information relating to all transactions concerning each Series' assets.
(g) The investment management services of the Manager to the Series
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) 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 Fund (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Trustees of the Fund
authorizing the appointment of the Manager and approving the form of this
agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the Registration Statement), as filed
with the Securities and Exchange Commission (the Commission) relating to the
Fund and
5
<PAGE>
its shares of beneficial interest and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of each Series and Statement of Additional Information
(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 Fund to serve in the
capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records with respect to
each Series required to be maintained by it pursuant to paragraph 2 hereof. The
Manager agrees that all records which it maintains for the Fund are the property
of the Fund and it will surrender promptly to the Fund any such records upon the
Fund's request, provided however that the Manager may retain a copy of such
records. The Manager further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records as are required to be maintained
by the Manager pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the
following expenses:
6
<PAGE>
(i) 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 the Manager or a Series' investment adviser,
(ii) all expenses incurred by the Manager or by the Fund in connection
with managing the ordinary course of each Series' business other than those
assumed by the Fund herein, and
(iii) the costs and expenses payable to PIC pursuant to the Subadvisory
Agreement.
The Fund assumes and will pay the expenses described below, allocable among
the Fund's Series as the Fund shall determine:
(a) the fees and expenses incurred by the Fund in connection with the
management of the investment and reinvestment of each Series' assets,
(b) the fees and expenses of trustees who are not affiliated persons
of the Manager or a Series' investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii) preparing
and maintaining the general accounting records of the Fund and the providing
of any such records to the Manager useful to the Manager in connection with
the Manager's responsibility for the accounting records of the Fund pursuant
to Section 31 of the 1940 Act and the rules promulgated thereunder, (iii)
the pricing of the shares of each Series, including the cost of any pricing
service or services which may be retained pursuant to the authorization of
the Board of Trustees of
7
<PAGE>
the Fund, and (iv) for both mail and wire orders, the cashiering function in
connection with the issuance and redemption of each Series' securities,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the maintenance
of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable to
each Series in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by each Series to federal,
state or other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of stock certificates representing, and/or non-negotiable
share deposit receipts evidencing, shares of each Series or their respective
classes of shares,
(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 Fund and of its shares with the Securities and Exchange
Commission, registering the Fund as a broker or dealer and paying notice
filing fees under state securities laws, including the preparation and
printing of the
8
<PAGE>
Fund's registration statements and each Series' prospectuses and statements
of additional information for filing under federal and state securities laws
for such purposes,
(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and trustees' meetings and of
preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders,
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's or a Series'
business, and
(n) any expenses assumed by a Series 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 Fund will pay to the Manager as full compensation therefor a fee
at the annual rate of each Series' average daily net assets designated on
Schedule A with respect to each Series. This fee will be computed daily and
will be paid to the Manager monthly.
8. The Manager shall not be liable for any error of judgment or for any
loss suffered by a Series 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
9
<PAGE>
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Trustees of the Fund
or, with respect to each Series, by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of such Series, 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. The termination of this
Agreement with respect to any Series shall not result in the termination of this
Agreement with respect to any other Series unless explicitly so provided. 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 Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
11. Except as otherwise provided herein or authorized by the Board of
10
<PAGE>
Trustees of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund or a Series in any way or otherwise be deemed an
agent of the Fund or a Series.
12. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of each Series or the public, which refer in any way to the
Manager, prior to use thereof and not to use such material if the Manager
reasonably objects in writing within five business days (or such other time as
may be mutually agreed) after receipt thereof. In the event of termination of
this Agreement, the Fund will continue to furnish to the Manager copies of any
of the above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund or a Series 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 Fund 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,
11
<PAGE>
Newark, NJ 07102-4077, Attention: Secretary; or (2) to the Fund 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 Fund may use the name "Prudential Developing Markets 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 Fund will (to the 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 Fund use the name "Prudential
Developing Markets 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.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL DEVELOPING MARKETS FUND
By: /s/ Richard A. Redeker
------------------------
Richard A. Redeker
President
PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC
By: /s/ Robert F. Gunia
--------------------
Robert F. Gunia
Executive Vice President
13
<PAGE>
SCHEDULE A
TO
PRUDENTIAL DEVELOPING MARKETS FUND
MANAGEMENT AGREEMENT
Fund Compensation*
- ---- -------------
Prudential Developing Markets Equity Fund Fee calculated at the
annual rate of 1.25% of
average daily net assets
Prudential Latin America Equity Fund Fee calculated at the
annual rate of 1.25% of
average daily net assets
Dated: June 1, 1998
* The Manager may voluntarily waive any portion of its compensation or reimburse
the Series for certain operating expenses as it may elect from time to time and
the Manager may terminate any such waiver or reimbursement in its sole
discretion upon reasonable advance notice to the Fund.
14
<PAGE>
EXHIBIT 99.5(b)
PRUDENTIAL DEVELOPING MARKETS FUND
Subadvisory Agreement
---------------------
Agreement made as of this 1st day of June 1998 between Prudential
Investments Fund Management LLC, a New York limited liability company (PIFM or
the Manager), and The Prudential Investment Corporation, a New Jersey
Corporation (the Subadviser).
WHEREAS, the Manager has entered into a Management Agreement, dated June 1,
1998 (Management Agreement), with Prudential Developing Markets Fund (the Fund),
a Delaware business trust and a 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 certain investment series of the
Fund identified on Schedule A of this Agreement, as may be amended from time to
time (each investment series herein referred to as a Series).
WHEREAS, PIFM desires to retain the Subadviser to provide investment
advisory services to each Series in connection with the management of the Series
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 Fund, the Subadviser shall manage the investment operations
of each Series and the composition of each Series' portfolio, including the
purchase, retention and disposition thereof, in accordance with each
Series' investment objective, 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 each Series'
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the Series,
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 and By-Laws of the Fund and Prospectus of the
Series and with the instructions and directions of the Manager and of
the Board of Trustees of the Fund and will conform to and comply with
the
1
<PAGE>
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 each Series and will place
orders with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential
Securities Incorporated) to carry out the policy with respect to
brokerage as set forth in the Fund's Registration Statement and each
Series' Prospectus or as the Board of Trustees may direct from time
to time. In providing each Series with investment supervision, it is
recognized that the Subadviser will give primary consideration to
securing the most favorable price and efficient execution. Within
the framework of this policy, the Subadviser may consider the
financial responsibility, research and investment information and
other services provided by brokers, dealers or futures commission
merchants who may effect or be a party to any such transaction or
other transactions to which the Subadviser's other clients may be a
party. It is understood that Prudential Securities Incorporated may
be used as principal broker for securities transactions but that no
formula has been adopted for allocation of the Fund's or a Series'
investment transaction business. It is also understood that it is
desirable for each Series 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 each Series 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 each Series with such
brokers or futures commission merchants, subject to review by the
Fund'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 each
Series as well as other clients of the Subadviser, the Subadviser, to
the extent permitted by applicable laws and regulations, may, but
shall be under no obligation to, aggregate the securities or futures
contracts to be sold or purchased in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities or futures
contracts so purchased or sold, as well as the
2
<PAGE>
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 each Series and to such
other clients.
(iv) The Subadviser shall maintain all books and records with
respect to each Series' portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f)
of Rule 31a-1 under the 1940 Act and shall render to the Fund's Board
of Trustees such periodic and special reports as the Board may
reasonably request.
(v) The Subadviser shall provide to the Fund's Custodian on each
business day information relating to all transactions concerning each
Series' 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 trustees,
officers and employees who may be elected as trustees or officers of the
Fund to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such trustees, officers or employees.
(c) The Subadviser shall keep the Fund's books and records with respect to
each Series required to be maintained by the Subadviser pursuant to
paragraph 1(a) hereof and shall timely furnish to the Manager all
information relating to the Subadviser's services hereunder needed by the
Manager to keep the other books and records of the Fund required by Rule
31a-1 under the 1940 Act. The Subadviser agrees that all records which it
maintains for the Fund are the property of the Fund and the Subadviser
will surrender promptly to the Fund any of such records upon the Fund's
request, provided however that the Subadviser may retain a copy of such
records. The Subadviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by it pursuant to paragraph 1(a)
hereof.
2. The Manager shall continue to have responsibility for all services to
be provided to each Series pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
3
<PAGE>
3. The Manager shall reimburse the Subadviser for reasonable costs and
expenses incurred by the Subadviser determined in a manner acceptable to
the Manager in furnishing the services described in paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by a Series 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 Fund at any time, without the payment of any penalty,
by the Board of Trustees of the Fund or, with respect to each Series, by
vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of such Series, 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. The termination of this
Agreement with respect to any Series shall not result in the termination
of this Agreement with respect to any other series unless explicitly so
provided. 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 Fund to engage in any other business
or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or a dissimilar
nature, nor limit or restrict the Subadviser's right to engage in any
other business or to render services of any kind to any other corporation,
firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other material prepared for
distribution to shareholders of each Series or the public, which refer to
the Subadviser in any way, prior to use thereof and not to use material if
the Subadviser reasonably objects in writing five business days (or such
other time as may be mutually agreed) after receipt thereof. Sales
literature may be furnished to the Subadviser hereunder by first-class or
overnight mail, facsimile transmission equipment or hand delivery.
4
<PAGE>
8. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940
Act.
9. This Agreement shall be governed by the laws of the State of New York.
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/Jonathan M. Greene
----------------------
Jonathan M. Greene
Senior Vice President
5
<PAGE>
SCHEDULE A
TO
PRUDENTIAL DEVELOPING MARKETS FUND
SUBADVISORY AGREEMENT
Series
- ------
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Dated: June 1, 1998
6
<PAGE>
EXHIBIT 99.6(a)
PRUDENTIAL DEVELOPING MARKETS FUND
Distribution Agreement
----------------------
Agreement made as of June 1, 1998 between Prudential Developing
Markets Fund, a Delaware business trust (the Fund), and Prudential Securities
Incorporated, a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company that may offer its shares through separate series
(individually, a Series, and collectively, the Series);
WHEREAS, it is in the interest of the Fund to offer its shares for
sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
Series (all such shares being referred to herein as Shares) and the Series
currently are each authorized to offer Class A, Class B, Class C and Class Z
Shares;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Series' Shares
from and after the date hereof in order to promote the growth of the Series and
facilitate the distribution of their respective Shares; and
WHEREAS, upon approval by the holders of the respective classes and/or
Series of Shares of the Fund it is contemplated that the Fund will adopt a plan
(or plans) of distribution pursuant to Rule 12b-1 under the Investment Company
Act with respect to certain of its classes and/or Series (the Plans) authorizing
payments by the Fund to the Distributor with respect to the distribution of such
classes and/or Series of Shares and the maintenance of related shareholder
accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as principal underwriter and
<PAGE>
distributor of the Shares of the Fund to sell Shares to the public on behalf of
the Fund and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Series through the Distributor on the terms and conditions set
forth below.
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Series' Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of
the Series shall not apply to Shares of a Series issued in connection with the
merger or consolidation of any other investment company or personal holding
company with the Series or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Series.
2.2 Such exclusive rights shall not apply to Shares issued by a
Series pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by a
Series pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through a
Series' transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Series. The term "Prospectus" shall mean
the Prospectus of the Series and Statement of Additional Information included as
part of the Fund's Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to time, and the
term "Registration Statement" shall mean the Registration Statement filed by the
Fund with the Securities and Exchange Commission and effective under the
Securities Act of 1933, as amended (Securities Act), and the Investment Company
Act, as such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from a Series
--------------------------------
3.1 The Distributor shall have the right to buy from a Series on
behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 Shares shall be sold by the Distributor on behalf of a Series and
delivered by the Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or Series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board of Trustees. The Fund shall also have the right to
suspend the sale of any or all classes and/or Series of its Shares if a banking
moratorium shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares of the Series
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Shares of a Series. The Fund
(or its agent) will confirm orders upon their receipt, will make appropriate
book entries and upon receipt by the Fund (or its agent) of payment therefor,
will deliver deposit receipts for such Shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by a Series
----------------------------------------------
4.1 Any of the outstanding Shares of a Series may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Shares
so tendered in accordance with its Declaration of Trust as amended from time to
time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Shares of a Series shall be equal
to the net asset value determined as set forth in the Prospectus. All payments
by a Series hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay from the appropriate Series the total amount
of the redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh day subsequent to its
having received the notice of redemption in proper form. The proceeds of any
redemption of Shares shall be paid by the Series as follows: (I) in the case of
Shares subject to a contingent deferred sales charge, any applicable contingent
deferred sales charge shall be paid to the Distributor, and the balance shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus; and (ii) in the case of
all other Shares, proceeds shall be paid to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.
4.3 Redemption of any class and/or Series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
3
<PAGE>
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by a Series of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Series fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell Shares of the respective classes and/or
Series so long as it has Shares of the respective classes and/or Series
available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for each Series by independent public accountants. The Fund
shall make available to the Distributor such number of copies of each Series'
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Trustees and the shareholders, all necessary
action to register Shares under the Securities Act, to the end that there will
be available for sale such number of Shares of each Series as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to maintain notice filings of
an appropriate number of its Shares for sales under the securities laws of such
states as the Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Declaration of Trust or By-Laws to comply with the
laws of any state, to maintain an office in any state, to change the terms of
the offering of its Shares in any state from the terms set forth in its
Registration Statement, to qualify as a foreign corporation or trust in any
state or to consent to service of process in any state other than with respect
to claims arising out of the offering of its Shares. Any such notice filings
may be terminated or withdrawn by the Fund at any time in its discretion.
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Shares, but shall not be obligated to sell any specific number of
Shares. Sales of
4
<PAGE>
the Shares shall be on the terms described in the Prospectus. The Distributor
may enter into like arrangements with other investment companies. The
Distributor shall compensate the selected dealers as set forth in a Series'
Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or a Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD. Shares sold to selected dealers shall be
for resale by such dealers only at the offering price determined as set forth in
a Series' Prospectus.
Section 7. Payments to the Distributor
---------------------------
7.1 With respect to classes and/or Series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Rule 2830 of the Conduct Rules of the NASD. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of any
applicable Plan.
7.2 With respect to classes and/or Series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Rule 2830 of the Conduct Rules
of the NASD. Payment of these amounts to the Distributor is not contingent upon
the adoption or continuation of any applicable Plan.
Section 8. Payment to the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for
services
5
<PAGE>
under any Plans adopted by the Fund on behalf of any classes and/or Series of
Shares a distribution and service fee with respect to the Fund's classes and/or
Series as described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Trustees of the commissions and account
servicing fees with respect to the relevant class and/or Series of Shares to be
paid by the Distributor to account executives of the Distributor and to broker-
dealers and financial institutions which have dealer agreements with the
Distributor. So long as a Plan (or any amendment thereto) is in effect, at the
request of the Board of Trustees or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
Series of Shares.
Section 9. Allocation of Expenses
----------------------
The Fund shall bear all costs and expenses of the continuous offering
of its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of notice filings of the Shares
for sale, and, if necessary or advisable in connection therewith, of qualifying
the Fund or a Series as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to each such
state for continuing notice filings therein until the Fund decides to
discontinue such notice filings pursuant to Section 5.4 hereof. As set forth in
Section 8 above, the Fund shall also bear the expenses it assumes pursuant to
any Plan, so long as such Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, directors or any such controlling person
6
<PAGE>
may incur under the Securities Act, or under common law or otherwise, arising
out of or based upon any untrue statement of a material fact contained in the
Registration Statement or any Prospectus or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
except insofar as such claims, demands, liabilities or expenses arise out of or
are based upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with information furnished
in writing by the Distributor to the Fund for use in the Registration Statement
or any Prospectus; provided, however, that this indemnity agreement shall not
inure to the benefit of any such officer, trustee or controlling person unless a
court of competent jurisdiction shall determine in a final decision on the
merits, that the person to be indemnified was not liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnified person was
not liable by reason of disabling conduct, by (a) a vote of a majority of a
quorum of trustees or trustees who are neither "interested persons" of the Fund
as defined in Section 2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. The Fund's
agreement to indemnify the Distributor, its officers and directors or trustees
and any such controlling person as aforesaid is expressly conditioned upon the
Fund being promptly notified of any action brought against the Distributor, its
officers or directors or trustees, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issue and sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and trustees and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and trustees or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its trustees or officers or such
controlling person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or any Prospectus or shall arise out of or be based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or any
Prospectus or necessary to make such information not misleading. The
Distributor's agreement to indemnify the Fund, its officers and trustees and any
such controlling person as aforesaid, is expressly
7
<PAGE>
conditioned upon the Distributor being promptly notified of any action brought
against the Fund, its officers and trustees or any such controlling person, such
notification being given to the Distributor at its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities of the applicable class and/or
Series, and (b) by the vote of a majority of those trustees who are not parties
to this Agreement or interested persons of any such parties and who have no
direct or indirect financial interest in this Agreement or in the operation of
any of the Fund's Plans or in any agreement related thereto (independent
trustees), cast in person at a meeting called for the purpose of voting upon
such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the independent trustees or by vote of
a majority of the outstanding voting securities of the applicable class and/or
Series, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Trustees of the Fund, or by the vote
of a majority of the outstanding voting securities of the applicable class
and/or Series, and (b) by the vote of a majority of the independent trustees
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. Separate Agreement as to Classes and/or Series
----------------------------------------------
The amendment or termination of this Agreement with respect to any
class and/or Series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or Series unless explicitly so
provided.
8
<PAGE>
Section 14. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Prudential Securities Incorporated
By: /s/ Robert F. Gunia
-------------------
Robert F. Gunia
Senior Vice President
Prudential Developing Markets Fund
By: /s/ Richard A. Redeker
----------------------
Richard A. Redeker
President
9
<PAGE>
EXHIBIT 99.6(b)
PRUDENTIAL DEVELOPING MARKETS FUND
Distribution Agreement
----------------------
Agreement made as of June 1, 1998, between Prudential Developing
Markets Fund (the Fund), and Prudential Investment Management Services LLC, a
Delaware limited liability company (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, the Fund has adopted a plan (or plans) of distribution
pursuant to Rule 12b-1 under the Investment Company Act with respect to certain
of its classes and/or series of Shares (the Plans) authorizing payments by the
Fund to the Distributor with respect to the distribution of such classes and/or
series of Shares and the maintenance of related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Shares of the Fund to sell Shares to the public on behalf
of the Fund and the Distributor hereby accepts such appointment and agrees to
act hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund through the Distributor on the terms and conditions set forth
below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of
the Fund shall not apply to Shares of the Fund issued in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
--------------------------------
3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund
and delivered by the Distributor or selected dealers, as described in Section
6.4 hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its Shares at times when redemption is suspended
pursuant to
2
<PAGE>
the conditions in Section 4.3 hereof or at such other times as may be determined
by the Board. The Fund shall also have the right to suspend the sale of any or
all classes and/or series of its Shares if a banking moratorium shall have been
declared by federal or New Jersey authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
----------------------------------------------
4.1 Any of the outstanding Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Declaration of Trust as amended from time to time, and in
accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
3
<PAGE>
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell its Shares so long as it has Shares of
the respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board and the shareholders, all necessary action to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to notify such states as the
Distributor and the Fund may approve of its intention to sell any appropriate
number of its Shares; provided that the Fund shall not be required to amend its
Declaration of Trust or By-Laws to comply with the laws of any state, to
maintain an office in any state, to change the terms of the offering of its
Shares in any state from the terms set forth in its Registration Statement, to
qualify as a foreign corporation in any state or to consent to service of
process in any state other than with respect to claims arising out of the
offering of its Shares. Any such notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification shall be
borne by the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such notifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Shares, but shall not be obligated to sell any specific number of
Shares. Sales of the Shares shall be on the terms described in the Prospectus.
The Distributor may enter into like arrangements with other investment
companies. The Distributor shall compensate the selected dealers as set forth
in the Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of Securities Exchange Act Rule 10b-10 and the rules of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD or are institutions exempt from
registration under applicable federal securities laws. Shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Rule 2830 of the Conduct Rules of the NASD. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of any
applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Rule 2830 of the Conduct Rules
of the NASD.
5
<PAGE>
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of any Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of the commissions and account servicing fees
with respect to the relevant class and/or series of Shares to be paid by the
Distributor to account executives of the Distributor and to broker-dealers,
financial institutions and investment advisers which have dealer agreements with
the Distributor. So long as a Plan (or any amendment thereto) is in effect, at
the request of the Board or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. Allocation of Expenses
----------------------
The Fund shall bear all costs and expenses of the continuous offering
of its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of making notice
filings for the Shares for sale, and, if necessary or advisable in connection
therewith, of qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing notification therein until the Fund decides to
discontinue such notification pursuant to Section 5.4 hereof. As set forth in
Section 8 above, the Fund shall also bear the expenses it assumes pursuant to
any Plan, so long as such Plan is in effect.
Section 10. Indemnification
---------------
6
<PAGE>
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, members or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
member or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of trustees or trustees who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and members and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and trustees and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and trustees or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its trustees or officers or such
controlling person resulting from such claims or demands
7
<PAGE>
shall arise out of or be based upon any alleged untrue statement of a material
fact contained in information furnished by the Distributor to the Fund for use
in the Registration Statement or Prospectus or shall arise out of or be based
upon any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or Prospectus or
necessary to make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and trustees and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and trustees or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series of the Fund,
and (b) by the vote of a majority of those trustees who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of any of the
Fund's Plans or in any agreement related thereto (Independent trustees), cast in
person at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the independent trustees or by vote of
a majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of the Fund, or by the vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, and (b) by the vote of a majority of the independent trustees cast in
person at a meeting called for the purpose of voting on such amendment.
8
<PAGE>
Section 13. Separate Agreement as to Classes and/or Series
----------------------------------------------
The amendment or termination of this Agreement with respect to any
class and/or series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or series unless explicitly so
provided.
Section 14. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New Jersey as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New Jersey, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Investment Management Services LLC
By: /s/Jonathan M. Greene
---------------------
Jonathan M. Greene
Executive Vice President
Prudential Developing Markets Fund
By: /s/ Richard A. Redeker
----------------------
Richard A. Redeker
President
9
<PAGE>
EXHIBIT 99.6(c)
FORM OF
DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and
_________________ ("Dealer") have agreed that Dealer will participate in the
distribution of shares ("Shares") of all the funds and series thereof (as they
may exist from time to time) comprising the Prudential Mutual Fund Family (each
a "Fund" and collectively the "Funds") and any classes thereof for which
Distributor now or in the future serves as principal underwriter and
distributor, subject to the terms of this Dealer Agreement ("Agreement"). Any
such additional Funds will be included in this Agreement upon Distributor's
written notification to Dealer.
1. LICENSING
---------
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners, directors,
officers, employees, and agents who will be utilized by Dealer with respect to
its duties and activities under this Agreement is either appropriately licensed
or exempt from such licensing requirements by the appropriate regulatory agency
of each state or other jurisdiction in which Dealer will offer and sell Shares
of the Funds.
c. Dealer agrees that: (i) termination or suspension of its registration
with the SEC; (ii) termination or suspension of its membership with the NASD; or
(iii) termination or suspension of its license to do business by any state or
other jurisdiction or federal regulatory agency shall immediately cause the
termination of this Agreement. Dealer further agrees to immediately notify
Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to the
Conduct Rules of the NASD and such Conduct Rules shall control any provision to
the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable state
and federal laws and all rules and regulations promulgated thereunder generally
affecting the sale or distribution of mutual fund shares.
2. ORDERS
------
a. Dealer agrees to offer and sell Shares of the Funds (including those of
each of its classes) only at the regular public offering price applicable to
such Shares and in effect at the time of each transaction. The procedures
relating to all orders and the handling of each order (including the manner of
computing the net asset value of Shares and the effective time of orders
A-1
<PAGE>
received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of additional information (including any supplements,
stickers or amendments thereto) relating to each Fund, as filed with the SEC
("Prospectus"); (ii) the new account application for each Fund, as supplemented
or amended from time to time; and (iii) Distributor's written instructions and
multiple class pricing procedures and guidelines, as provided to Dealer from
time to time. To the extent that the Prospectus contains provisions that are
inconsistent with this Agreement or any other document, the terms of the
Prospectus shall be controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is not
authorized to act as broker or agent for, or employee of, Distributor, any Fund
or any other dealer, and Dealer shall not in any manner represent to any third
party that Dealer has such authority or is acting in such capacity. Rather,
Dealer agrees that it is acting as principal for Dealer's own account or as
agent on behalf of Dealer's customers in all transactions in Shares, except as
provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if
the NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. DUTIES OF DEALER
----------------
a. Dealer agrees to purchase Shares only from Distributor or from Dealer's
customers.
b. Dealer agrees to enter orders for the purchase of Shares only from
Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
A-2
<PAGE>
c. Dealer agrees to date and time stamp all orders received by Dealer and
promptly, upon receipt of any and all orders, to transmit to Distributor all
orders received prior to the time described in the Prospectus for the
calculation of each Fund's net asset value so as to permit Distributor to
process all orders at the price next determined after receipt by Dealer, in
accordance with the Prospectus. Dealer agrees not to withhold placing orders for
Shares with Distributor so as to profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of Shares
made through Dealer and to furnish Distributor or regulatory authorities with
copies of such records upon request. In that regard, Dealer agrees that, unless
Dealer holds Shares as nominee for its customers or participates in the NSCC
Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its customers
Prospectuses, proxy solicitation materials and related information and proxy
cards, semi-annual and annual shareholder reports and any other materials in
compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor shall be
in Fed Funds, New York clearinghouse or other immediately available funds and
that such funds shall be received by Distributor by the earlier of: (i) the end
of the third (3rd) business day following Dealer's receipt of the customer's
order to purchase such Shares; or (ii) the settlement date established in
accordance with Rule 15c6-1 under the Securities Exchange Act of 1934, as
amended. If such payment is not received by Distributor by such date, Dealer
shall forfeit its right to any concession or commission with respect to such
order, and Distributor reserves the right, without notice, forthwith to cancel
the sale, or, at its option, to sell the Shares ordered back to the Fund, in
which case Distributor may hold Dealer responsible for any loss, including loss
of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.
A-3
<PAGE>
h. Dealer agrees that it: (i) shall assume responsibility for any loss to
the Fund caused by a correction to any order placed by Dealer that is made
subsequent to the trade date for the order, provided such order correction was
not based on any negligence on Distributor's part; and (ii) will immediately pay
such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the purchase of Shares
on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by mail,
telephone, or wire, Dealer shall act as agent for the custodian or trustee of
such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan. Dealer agrees
to indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.
j. Dealer agrees that it will not make any conditional orders for the
purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
l. Dealer agrees that it will keep in force appropriate broker's blanket
bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
4. DEALER COMPENSATION
-------------------
a. On each purchase of Shares by Dealer from Distributor, the total sales
charges and dealer concessions or commissions, if any, payable to Dealer shall
be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must
be notified at the time of the sale that the sale qualifies for the reduced
sales charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for
A-4
<PAGE>
Shares of another Fund, or class thereof, having the same sales charge structure
as the Fund, or class thereof, from which the exchange was made, in accordance
with the Prospectus.
b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares
purchased in a Qualifying Sale are redeemed within twelve (12) months of the end
of the month of purchase, Distributor shall be entitled to recover any advance
payment attributable to the redeemed Shares by reducing any account payable or
other monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which distribution
plans have been adopted under Rule 12b-1 under the Investment Company Act of
1940, as amended ("Rule 12b-1 Plans"), Distributor also is authorized to pay the
Dealer continuing distribution and/or service fees, as specified in Schedule A
and the relevant Fund Prospectus, with respect to Shares of any such Fund, to
the extent that Dealer provides distribution, marketing, administrative and
other services and activities regarding the promotion of such Shares and the
maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or service fees
under Rule 12b-1 Plans applicable to Shares purchased by Dealer's customers,
Distributor directs Dealer to provide enhanced shareholder services such as:
processing purchase and redemption transactions; establishing shareholder
accounts; and providing certain information and assistance with respect to the
Funds. (Redemption levels of shareholder accounts assigned to Dealer will be
considered in evaluating Dealer's continued ability to receive payments of
distribution and/or service fees.) In addition, Dealer agrees to support
Distributor's marketing efforts by, among other things, granting reasonable
requests for visits to Dealer's office by Distributor's wholesalers and
marketing representatives, including all Funds covered by a Rule 12b-1 Plan on
Dealer's "approved," "preferred" or other similar product lists, if applicable,
and otherwise providing satisfactory product, marketing and sales support.
Further, Dealer agrees to provide Distributor with supporting documentation
concerning the shareholder services provided, as Distributor may reasonably
request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be based
on the value of Shares attributable to Dealer's customers and eligible for such
payment, and shall be calculated on the basis of and at the rates set forth in
the compensation schedule then in effect. Without prior approval by a majority
of the outstanding shares of a Fund, the aggregate annual fees paid to Dealer
pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as the
"annual maximums" in each Fund's Prospectus, which amount shall be a specified
percent of the value of the Fund's net assets held in Dealer's customers'
accounts that are eligible for payment pursuant to the Rule 12b-1 Plans
(determined in the same manner as each Fund uses to compute its net assets as
set forth in its then current Prospectus).
A-5
<PAGE>
f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer hereby acknowledges that all payments under
Rule 12b-1 Plans are subject to limitations contained in such Rule 12b-1 Plans
and may be varied or discontinued at any time.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
--------------------------------------
a. The Prospectus for each Fund describes the provisions whereby the Fund,
under all ordinary circumstances, will redeem Shares held by shareholders on
demand. Dealer agrees that it will not make any representations to shareholders
relating to the redemption of their Shares other than the statements contained
in the Prospectus and the underlying organizational documents of the Fund, to
which it refers, and that Dealer will pay as redemption proceeds to shareholders
the net asset value, minus any applicable deferred sales charge or redemption
fee, determined after receipt of the order as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at a
price below that next quoted by the Fund for redemption or repurchase, i.e., at
the net asset value of such Shares, less any applicable deferred sales charge,
or redemption fee, in accordance with the Fund's Prospectus. Dealer shall,
however, be permitted to sell Shares for the account of the customer or record
owner to the Funds at the repurchase price then currently in effect for such
Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has made, if
instructions in proper form, including any outstanding certificates, are not
received by Distributor within the time customary or the time required by law,
the redemption may be canceled forthwith without any responsibility or liability
on Distributor's part or on the part of any Fund, or Distributor, at its option,
may buy the shares redeemed on behalf of the Fund, in which latter case
Distributor may hold Dealer responsible for any loss, including loss of profit,
suffered by Distributor resulting from Distributor's failure to settle the
redemption.
d. Dealer agrees that it will comply with any restrictions and limitations
on exchanges described in each Fund's Prospectus, including any restrictions or
prohibitions relating to frequent purchases and redemptions (i.e., market
timing).
6. MULTIPLE CLASSES OF SHARES
--------------------------
Distributor may, from time to time, provide Dealer with written
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of Shares with different sales charges and distribution-related
operating expenses.
7. FUND INFORMATION
----------------
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations
A-6
<PAGE>
concerning Shares of any Fund except those contained in the Fund's then current
Prospectus or in materials provided by Distributor.
b. Distributor will supply to Dealer Prospectuses, reasonable quantities
of sales literature, sales bulletins, and additional sales information as
provided by Distributor. Dealer agrees to use only advertising or sales
material relating to the Funds that: (i) is supplied by Distributor, or (ii)
conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Funds and is approved in writing by Distributor in advance of its
use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. SHARES
------
a. Distributor acts solely as agent for the Fund and Distributor shall
have no obligation or responsibility with respect to Dealer's right to purchase
or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws regulating the
sale of securities in the United States or any foreign jurisdiction, with
respect to the qualification or status of Dealer or Dealer's personnel selling
Fund Shares. Distributor shall not, in any event, be liable or responsible for
the issue, form, validity, enforceability and value of such Shares or for any
matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in any
foreign jurisdiction, except with the express written consent of Distributor.
9. INDEMNIFICATION
---------------
a. Dealer agrees to indemnify, defend and hold harmless Distributor and
the Funds and their predecessors, successors, and affiliates, each current or
former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to: (i) any alleged violation
of any statute or regulation (including without limitation the securities laws
and regulations of the United States or any state
A-7
<PAGE>
or foreign country) or any alleged tort or breach of contract, related to the
offer or sale by Dealer of Shares of the Funds pursuant to this Agreement
(except to the extent that Distributor's negligence or failure to follow correct
instructions received from Dealer is the cause of such loss, claim, liability,
cost or expense); (ii) any redemption or exchange pursuant to instructions
received from Dealer or its partners, affiliates, officers, directors, employees
or agents; or (iii) the breach by Dealer of any of its representations and
warranties specified herein or the Dealer's failure to comply with the terms and
conditions of this Agreement, whether or not such action, failure, error,
omission, misconduct or breach is committed by Dealer or its predecessor,
successor, or affiliate, each current or former partner, officer, director,
employee or agent and each person who controls or is controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer and
its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable time, of any
claim or complaint or any enforcement action or other proceeding with respect to
Shares offered hereunder against Dealer or its partners, affiliates, officers,
directors, employees or agents, or any person who controls Dealer, within the
meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of (i) any
report filed pursuant to NASD Conduct Rule 3070, including, without limitation
quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed with any
other self-regulatory organization in lieu of Rule 3070 reports pursuant to Rule
3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions shall
survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
----------------------
a. In addition to the automatic termination of this Agreement specified in
Section 1.c. of this Agreement, each party to this Agreement may unilaterally
cancel its participation in this Agreement by giving thirty (30) days prior
written notice to the other party. In addition, each party to this Agreement
may terminate this Agreement immediately by giving written notice to the other
party of that other party's material breach of this Agreement. Such notice
shall be deemed to have been given and to be effective on the date on which it
was either delivered personally to the other party or any officer or member
thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
b. This Agreement shall terminate immediately upon the appointment of a
Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
A-8
<PAGE>
c. The termination of this Agreement by any of the foregoing means shall
have no effect upon transactions entered into prior to the effective date of
termination and shall not relieve Dealer of its obligations, duties and
indemnities specified in this Agreement. A trade placed by Dealer subsequent to
its voluntary termination of this Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary suspension of
Dealer, will only be effective upon written notification by Distributor.
d. This Agreement is not assignable or transferable and will
terminate automatically in the event of its "assignment," as defined in the
Investment Company Act of 1940, as amended and the rules, regulations and
interpretations thereunder. The Distributor may, however, transfer any of its
duties under this Agreement to any entity that controls or is under common
control with Distributor.
e. This Agreement may be amended by Distributor at any time by
written notice to Dealer. Dealer's placing of an order or accepting payment of
any kind after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
--------------------------------------------
Distributor represents and warrants that:
a. It is a limited liability company duly organized and existing and in
good standing under the laws of the state of Delaware and is duly registered or
exempt from registration as a broker-dealer in all states and jurisdictions in
which it provides services as principal underwriter and distributor for the
Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's charter and
by-laws to enter into this Agreement and perform all activities and services of
the Distributor provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Distributor's ability to perform under this Agreement.
d. All requisite actions have been taken to authorize Distributor to enter
into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
------------------------------------------------
In addition to the representations and warranties found elsewhere in this
Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the laws
of the state, commonwealth or other jurisdiction in which Dealer is organized
and that Dealer will not offer Shares of any Fund for sale in any state or
jurisdiction where such Shares may not be legally sold or where Dealer is not
qualified to act as a broker-dealer.
A-9
<PAGE>
b. It is empowered under applicable laws and by Dealer's organizational
documents to enter into this Agreement and perform all activities and services
of the Dealer provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Dealer's ability to perform under this Agreement.
c. All requisite actions have been taken to authorize Dealer to enter into
and perform this Agreement.
d. It is not, at the time of the execution of this Agreement, subject to
any enforcement or other proceeding with respect to its activities under state
or federal securities laws, rules or regulations.
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
-----------------------------------------
a. Should any of Dealer's concession accounts with Distributor have a
debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal court
having jurisdiction.
c. This Agreement shall be governed and construed in accordance with
the laws of the state of New Jersey, not including any provision which would
require the general application of the law of another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
------------------------------
The parties to this Agreement agree to cooperate fully in any securities
regulatory investigation or proceeding or judicial proceeding with respect to
each's activities under this Agreement and promptly to notify the other party of
any such investigation or proceeding.
15. CAPTIONS
--------
All captions used in this Agreement are for convenience only, are not
a party hereof, and are not to be used in construing or interpreting any aspect
hereof.
16. ENTIRE UNDERSTANDING
--------------------
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This
A-10
<PAGE>
Agreement shall be binding upon the parties hereto when signed by Dealer and
accepted by Distributor.
A-11
<PAGE>
17. SEVERABILITY
------------
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement is held under applicable law to be
invalid, illegal, or unenforceable in any respect, such provision shall be
ineffective only to the extent of such invalidity, and the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
18. ENTIRE AGREEMENT
----------------
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be
binding upon the parties hereto when signed by Dealer and accepted by
Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By: ________________________________
Name: ________________________________
Title: ________________________________
Date: ________________________________
DEALER: ________________________________
By: ________________________________
(Signature)
Name: ________________________________
Title: ________________________________
Address:________________________________
________________________________
________________________________
Telephone: _____________________________
NASD CRD # _____________________________
Prudential Dealer # ___________________
(Internal Use Only)
Date: ________________________________
A-12
<PAGE>
EXHIBIT 99.8
FORM OF
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Employment of Custodian and Property to be Held by It..........................-1-
2. Duties to the Custodian with Respect to Property of The Fund Held By the
Custodian in the United States.................................................-2-
2.1 Holding Securities........................................................-2-
2.2 Delivery of Securities....................................................-2-
2.3 Registration of Securities................................................-6-
2.4 Bank Accounts.............................................................-7-
2.5 Availability of Federal Funds.............................................-7-
2.6 Collection of Income......................................................-8-
2.7 Payment of Fund Monies....................................................-8-
2.8 Liability for Payment in Advance of Receipt of Securities Purchased......-11-
2.9 Appointment of Agents....................................................-11-
2.10 Deposit of Securities in Securities Systems.............................-11-
2.10A Fund Assets Held in the Custodian's Direct Paper System.................-13-
2.11 Segregated Account......................................................-14-
2.12 Ownership Certificates for Tax Purposes.................................-15-
2.13 Proxies.................................................................-16-
2.14 Communications Relating to Fund Portfolio Securities....................-16-
2.15 Reports to Trust by Independent Public Accountants......................-16-
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States..........................................................-17-
3.1 Appointment of Foreign Sub-Custodians...................................-17-
3.2 Assets to be Held.......................................................-17-
3.3 Foreign Securities Depositories.........................................-18-
3.4 Segregation of Securities...............................................-18-
3.5 Agreements with Foreign Banking Institutions............................-18-
3.6 Access of Independent Accountants of the Fund...........................-19-
3.7 Reports by Custodian....................................................-19-
3.9 Liability of Foreign Sub-Custodians.....................................-20-
3.10 Liability of Custodian..................................................-21-
3.11 Reimbursements for Advances.............................................-21-
3.12 Monitoring Responsibilities.............................................-22-
3.13 Branches of U.S. Banks..................................................-22-
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund.......-23-
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
5. Proper Instructions...........................................................-24-
6. Actions Permitted without Express Authority...................................-24-
7. Evidence of Authority.........................................................-25-
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income................................................-26-
9. Records.......................................................................-26-
10. Opinion of Fund's Independent Accountant......................................-27-
11. Compensation of Custodian.....................................................-27-
12. Responsibility of Custodian...................................................-27-
13. Effective Period, Termination and Amendment...................................-29-
14. Successor Custodian...........................................................-30-
15. Interpretive and Additional Provisions........................................-32-
16. Massachusetts Law to Apply....................................................-32-
17. Prior Contracts...............................................................-32-
18. The Parties...................................................................-32-
19. Limitation of Liability.......................................................-33-
</TABLE>
-ii-
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Prudential Developing Markets Fund, a Delaware
business trust, and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian", and each Fund listed
on Appendix A which evidences its agreement to be bound hereby executing a copy
of this Contract (each such Fund individually hereinafter referred to as the
"Fund").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/ Declaration of Trust. The Fund agrees to deliver to the
Custodian all securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, ("Shares") of
the Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors/ Trustees of the Fund, and
<PAGE>
provided that the Custodian shall have the same responsibility or liability to
the Fund on account of any actions or omissions of any sub-custodian so employed
as any such sub-custodian has to the Custodian, provided that the Custodian
agreement with any such domestic sub-custodian shall impose on such sub-
custodian responsibilities and liabilities similar in nature and scope to those
imposed by this Agreement with respect to the functions to be performed by such
sub-custodian. The Custodian may employ as sub-custodians for the Fund's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto but only in accordance
with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of The Fund Held By the
------------------------------------------------------------------------
Custodian in the United States
- ------------------------------
.
2.1 Holding Securities. The Custodian shall hold and physically segregate
------------------
for the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other than
(a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of Treasury, collectively referred to herein
as "Securities System" and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
----------------------
domestic securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book-entry
system account ("Direct Paper System") only upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by
-2-
<PAGE>
the parties, and only in the following cases:
(1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
--------
delivered to the Custodian;
(7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with
-3-
<PAGE>
"street delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any loss
arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the
Custodian's own negligence or willful misconduct;
(8) For exchange or conversation pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
(10) For delivery in connection with any loans of securities made by
the Fund, but only against receipt of adequate collateral as
--------
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is
to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian
-4-
<PAGE>
will not be held liable or responsible for the delivery of
securities owned by the Fund prior to the receipt of such
collateral;
(11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
--------
receipt of amounts borrowed;
(12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to
-5-
<PAGE>
time in the Fund's currently effective prospectus and statement
of additional information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
(15) For any other proper business purpose, but only upon receipt of,
--------
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of the Fund or in
the name of any nominees of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
------
authorized in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment adviser as the
Fund, or in the name or nominee name of any agent appointed pursuant to Section
2.9 or in the name or nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf of the Fund under
the terms of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts to timely collect
income due the Fund on such securities and to notify the Fund on a best efforts
basis of relevant
-6-
<PAGE>
corporate actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
-------------
account or accounts in the United States in the name of the Fund, subject only
to draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Fund, other than
cash maintained by the Fund, in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for the Fund may be deposited by it to its credit as Custodian
in the Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable; provided,
--------
however, that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank or
trust company and the funds to be approved by vote of a majority of the Board of
Directors/Trustees of the Fund. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by the Custodian only in
that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
-----------------------------
and the Custodian, the Custodian shall, upon the receipt of Proper Instructions,
make federal funds available to the Fund as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of checks received in
payment for Shares of the Trust which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
--------------------
Custodian shall collect on a timely basis all income and other payments with
respect to registered securities held
-7-
<PAGE>
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to the Fund's custodian
account. Without limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when due on
securities held hereunder. Income due the Fund on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which
----------------------
may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
(1) Upon the purchase of securities held domestically, options,
futures contracts or options on futures contracts for the account
of the Fund but only (a) against the delivery of such securities,
or evidence of title to such options, futures contracts or
options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United States
or abroad which is qualified under the Investment Company Act of
1940, as amended, to act as a custodian and has been designated
by the Custodian as its agent for this purpose) registered in the
name of the Fund
-8-
<PAGE>
or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the
case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.10 hereof;
(c) in the case of a purchase involving the Direct Paper System,
in accordance with the conditions set forth in Section 2.10A; (d)
in the case of repurchase agreements entered into between the
Fund and the Custodian, or another bank, or a broker-dealer which
is a member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund or (e) for transfer to a
time deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Article 5;
(2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Article 4 hereof;
(4) For the payment of any expense or liability incurred by the Fund,
including
-9-
<PAGE>
but not limited to the following payments for the account of the
Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not
such expenses are to be in whole or part capitalized or treated
as deferred expenses;
(5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
--------
addition to Proper Instructions, a certified copy of a resolution
of Board of Directors/Trustees or of the Executive Committee of
the Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of securities for the account of the Fund is
made by the Custodian in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
-10-
<PAGE>
2.9 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided, however, that
--------
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The Custodian may
-------------------------------------------
deposit and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
(2) The records of the Custodian with respect to domestic securities
of the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund;
(3) The Custodian shall pay for domestic securities purchased for the
account
-11-
<PAGE>
of the Fund upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and
(ii.) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer domestic securities sold for the
account of the Fund upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment
for the account of the Fund. Copies of all advices from the
Securities System of transfers of domestic securities for the
account of the Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the Fund at its
request. Upon request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the Fund
in the form of a written advice or notice and shall furnish
promptly to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of the Fund.
(4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13 hereof;
-12-
<PAGE>
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or
damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
-------------------------------------------------------
may deposit and/or maintain securities owned by the Fund in the Direct Paper
System of the Custodian subject to the following provisions:
(1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
(2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
(3) The records of the Custodian with respect to securities of the
Fund which
-13-
<PAGE>
are maintained in the Direct Paper System shall identify by book-
entry those securities belonging to the Fund;
(4) The Custodian shall pay for securities purchased for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to
the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt
of payment for the account of the Fund;
(5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund copies
of daily transaction sheets reflecting each day's transaction in
the Direct Paper System for the account of the Fund;
(6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may reasonably
request from time to time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper
------------------
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered
-14-
<PAGE>
under the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered contract market),
or of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii) for purposes of
segregating cash, government securities or liquid, high-grade debt obligations
in connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) for
the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for other proper
corporate purposes, but only, in the case of clause (iv), upon receipt of, in
--------
addition to Proper Instructions, a certified copy of a resolution of the Board
of Directors/Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
domestic securities of the Fund held by it and in connection with transfers of
such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic
-------
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all
-15-
<PAGE>
proxies, without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities. Subject to the
----------------------------------------------------
provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities held domestically and expirations of rights in
connection therewith and notices of exercise of call and put options written by
the Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the Custodian shall transmit
promptly to the Fund all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three business days
prior to the date of which the Custodian is to take such action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian
-------------------------------------------------
shall provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities, futures contracts
and options on futures contracts, including securities deposited and/or
maintained in a Securities System, relating to the services provided by the
Custodian under this Contract; such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material
-16-
<PAGE>
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside of
----------------------------------------------------------------------------
the United States
- -----------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
-------------------------------------
instructs the Custodian to employ as sub-custodians for the Fund's securities
and other assets maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on Schedule A hereto
("foreign sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of the Fund's
Board of Directors/Trustees, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian. Upon
receipt of Proper Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining custody of the
Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
-----------------
assets maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect the
Fund's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
-------------------------------
upon in writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
-17-
<PAGE>
sub-custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books
-------------------------
as belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian. Each agreement pursuant to which the Custodian employs a
foreign banking institution shall require that such institution establish a
custody account for the Custodian on behalf of the Fund and physically segregate
in that account, securities and other assets of the Fund, and, in the event that
such institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to the Custodian,
as agent for the Fund, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
--------------------------------------------
foreign banking institution shall be substantially in the form set forth in
Exhibit I hereto and shall provide that (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) beneficial
ownership of the Fund's assets will be freely transferable without the payment
of money or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund; (d) officers
of or auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
-18-
<PAGE>
3.6 Access of Independent Accountants of the Fund. Upon request of the
---------------------------------------------
Fund, the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
--------------------
to time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Trust's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account
---------------------------------------
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply, in their
entirety to the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be effected in
accordance with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefore (or an agent for such purchaser or
dealer) against a
-19-
<PAGE>
receipt with the expectation of receiving later payment for such securities from
such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
-----------------------------------
the Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the performance of
its duties and to indemnify, and hold harmless, the Custodian and each Fund from
and against any loss, damage, cost, expense, liability or claim arising out of
or in connection with the institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Fund has not been made whole for any such loss, damage,
cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts
----------------------
or omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless of
whether assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage,
cost, expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the sub-
custodian has otherwise exercised reasonable care.
-20-
<PAGE>
Notwithstanding the foregoing provisions of this paragraph 3.10, in delegating
custody duties to State Street London Ltd., the Custodian shall not be relieved
of any responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses (excluding
a bankruptcy or insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses under circumstances
where the Custodian and State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
--------------------------
advance cash or securities for any purpose including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in the event that the
Custodian or its nominees shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as any arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund assets to the
extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities
---------------------------
The Custodian shall furnish annually to the Fund, during the month of
June, information concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of this Contract.
In addition, the Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
-21-
<PAGE>
condition of a foreign sub-custodian or any material loss of the assets of the
Fund or in the case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
3.13 Branches of U.S. Banks
----------------------
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 shall not apply where the custody of the Fund assets are maintained in
a foreign branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
-----------------------------------------------------------------------
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation/Declaration of Fund and any
applicable votes of the Board of Directors/Trustees of the Trust pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who have delivered
to the Transfer Agent a request for redemption or repurchase of their Shares.
In connection with the redemption or repurchase of Shares of the Fund, the
Custodian is authorized
-22-
<PAGE>
upon receipt of instructions from the Transfer Agent to wire funds to or through
a commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. Proper Instructions
-------------------
Proper Instructions as used herein means a writing signed or initialed by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. It is understood and agreed that the Board of
Directors/Directors/Trustees has authorized (i) Prudential Mutual Fund
Management Inc., as Manager of the Fund, and (ii) The Prudential Investment
Corporation (or Prudential-Bache Securities Inc.), as Subadviser to the Fund, to
deliver proper instructions with respect to all
-23-
<PAGE>
matters for which proper instructions are required by this Article 5. The
Custodian may rely upon the certificate of an officer of the Manager or
Subadviser, as the case may be, with respect to the person or persons authorized
on behalf of the Manager and Subadviser, respectively, to sign, initial or give
proper instructions for the purpose of this Article 5. Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Fund and the Custodian are satisfied that
such procedures afford adequate safeguards for the Fund's assets. For purposes
of this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
- --------
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Fund except as otherwise directed by the
Board of Directors/Trustees of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent,
-24-
<PAGE>
certificate or other instrument or paper believed by it to be genuine and to
have been properly executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of Directors/Trustees
of the Fund as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Directors/ Trustees pursuant to the Articles of
Incorporation/Declaration of Fund as described in such vote, and such vote may
be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
---------------------------------------------------------------------------
Net Asset Value and Net Income
- ------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Trust and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an office of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. Records
-------
The Custodian shall create and maintain all records relating to its
activities and obligations
-25-
<PAGE>
under this Contract in such manner as will meet the obligations of the Fund
under the Investment Company Act of 1940, with particular attention to Section
31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Trust's Independent Accountant
-----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, Form N-2 (in the case
of a closed end fund) and Form N-SAR or other periodic reports to the Securities
and Exchange Commission and with respect to any other requirements of such
Commission.
11. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto
-26-
<PAGE>
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result
-27-
<PAGE>
in the Custodian or its nominee assigned to the Fund being liable for the
payment of money or incurring liability of some other form, the Fund, as a
prerequisite to requiring the Custodian to take such action, shall provide
indemnity to the Custodian in an amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement provided, however that,
prior to disposing of Fund assets hereunder, the Custodian shall give the Fund
notice of its intention to dispose of assets identifying such assets and the
Fund shall have one business day from receipt of such notice to notify the
Custodian if the Fund wishes the Custodian to dispose of Fund assets of equal
value other than those identified in such notice.
13. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and
effect until terminated as hereinafter provided, may be amended at any time by
mutual agreement of the parties hereto and may be terminated by either party by
an instrument in writing delivered or mailed, postage prepaid to the other
party, such termination to take effect not sooner than sixty (60) days after the
date of such delivery or mailing; provided, however that the Custodian shall not
--------
act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary
-28-
<PAGE>
or an Assistant Secretary that the Board of Directors/Trustees of the Fund has
approved the initial use of a particular Securities System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has reviewed the use by the Fund of such Securities System,
as required in each case by Rule 17f-4 under the Investment Company Act of 1940,
as amended and that the Custodian shall not act under Section 2.10A hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors/Trustees has approved the
initial use of the Direct Paper System and the receipt of an annual certificate
of the Secretary or an Assistant Secretary that the Board of Directors/Trustees
has reviewed the use by the Trust of the Direct Paper System; provided further,
-------- -------
however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Articles of Incorporation/Declaration of Trust, and further, provided,
that the Fund may at any time by action of its Board of Directors/Trustees (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the
-29-
<PAGE>
Fund, the Custodian shall, upon termination, deliver to such successor custodian
at the office of the Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder and shall transfer to an account of the
successor custodian all of the Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor
-30-
<PAGE>
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Contract relating to the duties
and obligations of the Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
--------
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/ Declaration of Trust of the Fund. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
16. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
18. The Parties
-----------
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual Fund
and the Custodian. With
-31-
<PAGE>
respect to any Fund listed on Appendix A which is organized as a Massachusetts
Business Trust, references to Board of Directors and Articles of Incorporation
shall be deemed a reference to Board of Directors/Trustees and Articles of
Incorporation/Declaration of Trust respectively and reference to shares of
capital stock shall be deemed a reference to shares of beneficial interest.
19. Limitation of Liability
-----------------------
Each Trust listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Articles of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the dates set forth on Appendix A.
ATTEST STATE STREET BANK AND TRUST COMPANY
By /s/ Scott Johnson
- ------------------------- ------------------------------------
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
/s/ S. Jane Rose By /s/ Richard A. Redeker
- ---------------- ----------------------
S. Jane Rose Richard A. Redeker
Secretary President
-32-
<PAGE>
Schedule 1
Prudential Mutual Funds
State Street Global Custody Network
<TABLE>
<CAPTION>
Securities Depository
or
Country Bank Clearing Agency
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina Citibank, N.A. Caja de Valores S.A.
Australia Westpac Banking Corporation Austraclear Limited;
Reserve Bank Information
and Transfer System (RITS)
Austria GiroCredit Bank Aktiengesellschaft Oesterreichische Kontrollbank AG
der Sparkassen (Wertpapiersammelbank Division)
Bangladesh+ Standard Chartered Bank None
Belguim Generale Bank Caisse Interprofessionnelle de Depots
et de Virements de Titres S.A. (CIK);
Brazil Citibank, N.A. Bolsa de Valores de Sao Paulo (Bovespa);
Banco Central do Brasil, Systema Especial
de Liquidacao e Custodial (SELIC)
Canada Cananda Trustco Mortgage The Canandian Depository for Securities
Company Limited (CDS)
Chile Citibank, N.A. None
China The HongKong and Shanghai Shanghai Securities Central Clearing and
Banking Corporation Limited, Registration Corporation (SSCCRC)
Shanghai and Shenzhen branches
Shenzhen Securities Central Clearing Co.,
Ltd. (SSCC)
Colombia Cititrust Columbia S.A. None
Sociedad Fiduciaria
Cyprus Barclays Bank PLC None
Cyprus Offshore Banking Unit
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Securities Depository
or
Country Bank Clearing Agency
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Czech Republic Ceskoslovenska Obchodni Stredisko cennych papiru (SCP);
Banka A.S.
Czech National Bank (CNB)
Denmark Den Danske Bank Vaerdipapircentralen- The Danish
Securities Center (VP)
Ecuador Citibank, N.A. None
Egypt National Bank of Egypt Misr Company For Clearing, Settlement,
and Central Depository (MCSD)
Finland Merita Bank Limited The Finnish Central Securities Depository
(CSD)
France Banque Paribas Societe Interprofessionnelle pour la
Compensation des Valeurs Mobiiieres
(SICOVAM);
Banque de France, Saturne System
Germany Dresdner Bank AG The Deutscher Kassenverein AG
Ghana Barclays Bank of Ghana Limited None
Greece National Bank of Greece S.A. The Central Securities Depository
(Apothetirion Titlon A.E.)
Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
Hungary Citibank Budapest Rt. The Central Depository and Clearing
House (Budapest) Ltd. (KELLER Ltd.)
India The HongKong and Shanghai None
Banking Corporation Limited
Deutsche Bank AG
Indonesia Standard Chartered Bank None
Ireland Bank of Ireland The Central Bank of Ireland,
The Gilt Settlement Office (GSO)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Securities Depository
or
Country Bank Clearing Agency
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Israel Bank Hapoalim B.M. The Clearing House of the
Tel Aviv Stock Exchange
Bank of Israel
Italy Banque Paribas Monte Titoli, S.p.A.;
Banca d'Italia
Ivory Coast Societe Generale de Banques None
en Cote d'Ivoire
Japan The Daiwa Bank, Limited Japan Securities Depository
Center (JASDEC);
Sumitomo Trust & Banking
Co., Ltd. Bank of Japan Net System
The Fuji Bank, Limited
Jordan The British Bank of the Middle East None
(as delegate of the Hong Kong and
Shanghai Banking Corporation
Limited)
Kenya Barclays Bank of Kenya Limited None
Korea SEOULBANK Korea Securities Depository (KSD)
Lebanon The British Bank of the Middle East Custodian and Clearing Center of Financial
(as delegate of the Hong Kong and Instruments for Lebanon (MIDCLEAR)
Shanghai Banking Corporation S.A.L.
Limited)
Malaysia Standard Chartered Bank Malaysian Central Depository Sdn. Bhd.
Malaysia Berhad (MCD)
Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de Valores)
Morocco Banque Commerciale du Maroc None
Netherlands MeesPierson N.V Nederlands Centraal Instituut voor Giraal
Effectenverkeer B.V. (NECIGEF)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Securities Depository
or
Country Bank Clearing Agency
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
New Zealand ANZ Banking Group New Zeaiand Central Securities
(New Zealand) Limited Depository Limited (NZCSD)
Norway Christiania Bank og Kreditkasse Verdipapirsentralen- The Norwegian
Registry of Securities (VPS)
Pakistan Deutsche Bank AG None
Peru Citibank, N.A. Caja de Valores y Liquidaciones
(CAVALI, S.A.)
Philippines Standard Chartered Bank The Philippines Central Depository Inc.
(PCD)
The Book-Entry-System (BES) of Bangko
Sentral ng Philipinas;
The Registry of Scripless Securities
(ROSS) of the Bureau of the Treasury
Poland Citibank Poland, S.A. The National Depository of Securities
(Krajowy Depozyt Papierow
Wartosciowych)
National Bank of Poland
Portugal Banco Comercial Portugues Central de Valores Mobiliarios (Central)
Russia Credit Suisse First Boston, Zurich None
via Credit Suisse First Boston
Limited, Moscow
Singapore The Development Bank The Central Depository (Pte)
of Singapore Ltd. Limited (CDP)
Slovak Republic Ceskoslovenska Obchodna Stredisko Cennych Papierov (SCP);
Banka A.S. National Bank of Slovakia
South Africa Standard Bank of South Africa Ltd. The Central Depository Limited
Spain Banco Santander, S.A. Servicio de Compensacion y Liquidacion
de Valores S.A. (SCLV);
Banco de Espana,
Anotaciones en Cuenta
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Securities Depository
or
Country Bank Clearing Agency
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sri Lanka The HongKong and Shanghai The Central Depository System
Banking Corporation Limited (Pvt) Limited
Sweden Skandinaviska Enskilda Banken Vardepapperscentralen VPC AB,
The Swedish Central Securities Depository
Switzerland Union Bank of Switzerland Schweizerische Effekten-Giro AG (SEGA)
Taiwan Central Trust of China The Taiwan Securities Central
Depository Company, Ltd. (TSCD)
Thailand Standard Chartered Bank Thailand Securities Depository
Company, Ltd. (TSD)
Turkey Citibank, N.A. Takas ve Saklama Bankasi A.S.
(TAKASBANK);
Central Bank of Turkey
Transnational The Euroclear System
Cedel
United Kingdom State Street Bank and The Bank of England,
Trust Company The Centrai Gilts Office (CGO);
The Central Moneymarkets Office (CMO)
The European Settlements Office (ESO)
Uruguay Citibank, N.A. None
Venezuela Citibank, N.A. None
- --------------------------------------------------------------------------------------------------------------
</TABLE>
+ Countries marked by a dagger have been approved only for The Target
Portfolio Trust.
5
<PAGE>
Schedule I applies to the following non-money market funds:
Global Utility Fund, Inc.
Prudential Balanced Fund
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Developing Markets Fund
Prudential Diversified Bond Fund, Inc.
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Emerging Growth Fund, Inc.
Prudentiai Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.,
Prudential Jennison Series Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential Multi-Sector Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Real Estate Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Prudential World Fund, Inc.
The Target Portfolio Trust
The Global Total Return Fund, Inc.
6
<PAGE>
EXHIBIT 99.9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL DEVELOPING MARKETS FUND
and
PRUDENTIAL MUTUAL FUND SERVICES LLC
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
Article 1 Terms of Appointment; Duties of the Agent .................................1
Article 2 Fees and Expenses..........................................................5
Article 3 Representations and Warranties of PMFS.....................................5
Article 4 Representations of Warranties of the Fund..................................7
Article 5 Duty of Care and Indemnification...........................................7
Article 6 Documents and Covenants of the Fund and PMFS..............................10
Article 7 Termination of Agreement..................................................11
Article 8 Assignment................................................................12
Article 9 Affiliations..............................................................12
Article 10 Amendment.................................................................13
Article 11 Applicable Law............................................................13
Article 12 Miscellaneous.............................................................13
Article 13 Merger of Agreement.......................................................15
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 1st day of June, 1998 by and between
PRUDENTIAL DEVELOPING MARKETS FUND, a Delaware business trust having its
principal office and place of business at Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102 (the Fund), and PRUDENTIAL MUTUAL FUND SERVICES
LLC, a New Jersey limited liability corporation, having its principal office and
place of business at Raritan Plaza One, Edison, New Jersey 08837 (the Agent or
PMFS).
WHEREAS, the Fund desires to appoint PMFS as its transfer agent,
dividend disbursing agent and shareholder servicing agent in connection with
certain other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of PMFS
------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as,
the transfer agent for the authorized and issued shares of beneficial interest
of each series of the Fund, $.001 par value (Shares), dividend disbursing agent
and shareholder servicing agent in connection with any accumulation, open-
account or similar plans provided to the shareholders of the Fund or any series
thereof (Shareholders) and set out in the currently effective prospectuses and
statement of additional information (prospectus) of the Fund, including without
limitation any periodic
2
<PAGE>
investment plan or periodic withdrawal program.
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the Custodian
of the Fund authorized pursuant to the Declaration of Trust of the Fund (the
Custodian);
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions of Shares of the Fund as such charges may be reflected in the
prospectus;
(viii) Maintain records of account for and advise the Fund and its
3
<PAGE>
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant to
Rule 17Ad-10(e) under the Securities Exchange Act of 1934 (1934 Act) a record of
the total number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. In case any issue of
Shares would result in an overissue, PMFS shall refuse to issue such Shares and
shall not countersign and issue any certificates requested for such Shares.
When recording the issuance of Shares, PMFS shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and distributions by
federal tax authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts,
4
<PAGE>
preparing and mailing activity statements for Shareholders and providing
Shareholder account information and (ii) provide a system which will enable the
Fund to monitor the total number of Shares sold in each State or other
jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky notice for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of PMFS for the Fund's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Fund and the reporting of such transactions to the Fund as provided above
and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and PMFS.
Article 2 Fees and Expenses
-----------------
2.01 For performance by PMFS pursuant to this Agreement, the Fund
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between
5
<PAGE>
the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund
agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS
for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within
a reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to PMFS by the Fund upon
request prior to the mailing date of such materials.
Article 3 Representations and Warranties of PMFS
--------------------------------------
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of New Jersey and it is duly qualified to carry on its
business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission (SEC) as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and By-
Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it
6
<PAGE>
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to PMFS that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Delaware.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All proceedings required by said Declaration of Trust and By-
Laws have been taken to authorize it to enter into and perform this Agreement.
4.04 It is an investment company registered or to be registered with
the SEC under the Investment Company Act of 1940, as amended (the 1940 Act).
4.05 A registration statement under the Securities Act of 1933 (the
1933 Act) is currently effective or is anticipated to become effective, and will
remain effective, and appropriate state securities law notice filings have been
made and will continue to be made, with respect to all Shares of the Fund being
offered for sale.
Article 5 Duty of Care and Indemnification
--------------------------------
5.01 PMFS shall not be responsible for, and the Fund shall indemnify
and hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken
7
<PAGE>
pursuant to this Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky laws of
any State or other jurisdiction that notice of such Shares be filed in such
State or other jurisdiction or in violation of any stop order or other
determination or ruling by any federal agency or any State or other jurisdiction
with respect to the offer or sale of such Shares in such State or other
jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to any action or failure or
omission to act by PMFS as a result of PMFS' lack of good faith, negligence or
willful misconduct.
8
<PAGE>
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
9
<PAGE>
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 Documents and Covenants of the Fund and PMFS
--------------------------------------------
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Declaration of Trust and By-Laws of the Fund
and all amendments thereto;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act and the 1940 Act;
(d) A specimen of the certificates for Shares of the Fund in the forms
10
<PAGE>
approved by the Board of Trustees, with a certificate of the Secretary of the
Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems to
be appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and
11
<PAGE>
shall not be voluntarily disclosed to any other person except as may be required
by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
------------------------
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any
other reasonable fees and expenses associated with such termination.
Article 8 Assignment
----------
8.01 Except as provided in Section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by
12
<PAGE>
the Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to: (i) Prudential Securities Incorporated (Prudential Securities), a
registered broker-dealer, (ii) The Prudential Insurance Company of America
(Prudential), (iii) Pruco Securities Corporation, a registered broker-dealer,
(iv) any Prudential Securities or Prudential subsidiary or affiliate duly
registered as a broker-dealer and/or a transfer agent pursuant to the 1934 Act
or (vi) any other Prudential Securities or Prudential affiliate or subsidiary;
provided, however, that PMFS shall be as fully responsible to the Fund for the
acts and omissions of any agent or subcontractor as it is for its own acts and
omissions.
Article 9 Affiliations
------------
9.01 PMFS may now or hereafter, without the consent of or notice to
the Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential Securities
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the trustees, officers,
employees, agents and Shareholders of the Fund, and the trustees, officers,
employees, agents and shareholders of the Fund's investment adviser and/or
distributor, are or may be interested in the Agent as trustees, officers,
employees, agents, shareholders or otherwise, and that the trustees, officers,
employees, agents or shareholders of the
13
<PAGE>
Agent may be interested in the Fund as trustees, officers, employees, agents,
Shareholders or otherwise, or in the investment adviser and/or distributor as
officers, trustees, employees, agents, shareholders or otherwise.
Article 10 Amendment
---------
10.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Trustees of the Fund.
Article 11 Applicable Law
--------------
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 Miscellaneous
-------------
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a
14
<PAGE>
replacement certificate, in cases where the alleged loss is in the amount of
$1000 or less.
12.02 In the event that any check or other order for payment of money
on the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Fund's distributor
(Distributor) of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential Developing Markets Fund
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: President
To PMFS:
Prudential Mutual Fund Services LLC
Raritan Plaza One
Edison, NJ 08837
Attention: President
Article 13 Merger of Agreement
-------------------
13.01 This Agreement constitutes the entire agreement between the
15
<PAGE>
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: PRUDENTIAL DEVELOPING MARKETS FUND
/s/ S. Jane Rose By: /s/ Richard A. Redeker
- -------------- ----------------------
S. Jane Rose Richard A. Redeker
Secretary President
ATTEST: PRUDENTIAL MUTUAL
FUND SERVICES LLC
_____________ By: /s/ Vincent Marra
-----------------
Vincent Marra
16
<PAGE>
Schedule A
----------
Prudential Mutual Fund Services LLC
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
------------------------------------------
General - Fees are based on an annual per shareholder account charge for
- -------
account maintenance plus out-of-pocket expenses. In addition, there is a one
time set-up charge per account for manually established accounts and a monthly
charge for inactive zero balance accounts. The effective period of this fee
schedule is October 24, 1997 through October 23, 1998 and shall continue
thereafter from year to year, unless otherwise amended.
Annual Maintenance Charges - The annual maintenance charge includes the
- --------------------------
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Annual Maintenance Per Account Fee $9.00
Other Charges
- -------------
New Account Set-up Fee for Manually $2.00
Established Accounts
Monthly Inactive Zero Balance Account Fee $.20
Out-of -Pocket Expenses - out-of-pocket expenses include but are not limited to:
- -----------------------
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
Payment - An invoice will be presented to the Fund on a monthly basis assessing
- -------
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL DEVELOPING PRUDENTIAL MUTUAL FUND
MARKETS FUND SERVICES LLC
NAME: /s/ Grace C. Torres NAME: /s/ Vincent Marra
------------------- ------------------
Grace C. Torres Vincent Marra
TITLE: Treasurer TITLE: _________________
DATE: ___________________ DATE: _________________
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated June
16, 1998, relating to the statements of assets and liabilities of Prudential
Developing Markets Equity Fund and Prudential Latin America Equity Fund (the two
series constituting Prudential Developing Marketing Fund, collectively referred
to hereafter as the "Fund"), which appear in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectuses which constitute part of this Registration Statement. We also
consent to the reference to us under the heading "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in such Statement of
Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
June 16, 1998
<PAGE>
EXHIBIT 99.13
PURCHASE AGREEMENT
Prudential Developing Markets Fund (the Fund), an open-end, diversified
management investment company and a Delaware business trust, and Prudential
Investments Fund Management LLC, a New York limited liability company (PIFM),
intending to be legally bound, hereby agree as follows:
1. In order to provide the Fund with its initial capital, the Trust
hereby sells to PIFM, and PIFM hereby purchases, 10,000 shares of beneficial
interest (the Shares) of the Trust. The Shares are apportioned as follows:
Prudential Developing Markets Equity Fund: 1,250 Shares of Class A, 1,250 of
Class B, 1,250 Class C and 1,250 Shares of Class Z, each at the net asset value
of $10.00 per share; and Prudential Latin America Equity Fund: 1,250 Shares of
Class A, 1,250 Shares of Class B, 1,250 Shares of Class C, and 1,250 Shares of
Class Z. The Trust hereby acknowledges receipt from PIFM of funds in the amount
of $100,000 in full payment for the Shares.
2. PIFM represents and warrants to the Trust that the Shares are
being acquired for investment and not with a view to distribution thereof and
that PIFM has no present intention to redeem and dispose of any of the Shares.
3. PIFM hereby agrees that it will not redeem any of the Shares
except in direct proportion to the amortization of organizational expenses by
the Trust. In the event that the Trust liquidates before deferred
organizational expenses are fully amortized, then the Shares shall bear their
proportionate share of such unamortized organizational expenses.
IN WITNESS THEREOF, the parties have executed this agreement as of the
1st day of June, 1998.
Prudential Developing Markets Fund
By: /s/ Richard A. Redeker
-------------------------------
Richard A. Redeker
President
Prudential Investments Fund Management
LLC
By: /s/ Robert F. Gunia
--------------------------------
Robert F. Gunia
Executive Vice President
<PAGE>
EXHIBIT 99.15(a)
PRUDENTIAL DEVELOPING MARKETS FUND
Distribution and Service Plan
(Class A Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Developing Markets Fund (the Fund) and by Prudential
Securities Incorporated, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by one or
more investment series of the Fund (each, a Series, and collectively, the
Series). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Trustees of the Fund, including a majority of
those trustees who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Trustees), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and shareholders of its Series that
offer Class A shares. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the
1
<PAGE>
sale of Class A shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in Class A shares
of a Series of the Fund, to defray the costs and expenses associated with the
preparation, printing and distribution of prospectuses and sales literature and
other promotional and distribution activities and to provide for the servicing
and maintenance of shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class A shares of the
Fund's Series and to service shareholder accounts using all of the facilities of
the Prudential Securities distribution network, including sales personnel and
branch office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class A shares of the Fund's Series are
referred to herein as "Distribution Activities."
2. Payment of Service Fee
-----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service fee)
of each Series of the Fund. The Fund shall calculate and accrue daily amounts
payable by the Class A
2
<PAGE>
shares of a Series hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
a Series for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of a Series
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Trustees may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of a Series will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Series except that distribution expenses attributable to
the Series as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Series' shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Trustees. The allocation of distribution expenses among classes and
Series will be subject to the review of the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions and trailer commissions paid to, or on account of,
account executives of the Distributor;
3
<PAGE>
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;
(c) amounts paid to Prusec for performing services under a selected dealer
agreement between Prusec and the Distributor for sale of Class A
shares of a Series of the Fund, including sales commissions, trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Series
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than current
shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to Class A shares of a Series of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Trustees of
the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Trustees of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the
4
<PAGE>
Distributor and to broker-dealers and financial institutions which have selected
dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
This Plan became effective on the date of its approval by a vote of a
majority of the Board of Trustees of the Fund and a majority of the Rule 12b-1
Trustees cast in person at a meeting called for the purpose of voting on the
approval of the Plan.
The Plan shall, unless earlier terminated in accordance with its terms,
continue in full force and effect thereafter for so long as such continuance is
specifically approved at least annually by a majority of the Board of Trustees
of the Fund and a majority of the Rule 12b-1 Trustees by votes cast in person at
a meeting called for the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Trustees, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of a Series of
the Fund. The termination of this Agreement with respect to the Class A Shares
of any Series shall not result in the termination of this Agreement with respect
to the Class A Shares of any other Series unless explicitly so provided.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment
5
<PAGE>
Company Act) of the Class A shares of the Series of the Fund that would be
affected by such increase. All material amendments of the Plan shall be approved
by a majority of the Board of Trustees of the Fund and a majority of the Rule
12b-1 Trustees by votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. Rule 12b-1 Trustees
-------------------
While the Plan is in effect, the selection and nomination of the Trustees
shall be committed to the discretion of the Rule 12b-1 Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT 99.15(b)
PRUDENTIAL DEVELOPING MARKETS FUND
Distribution and Service Plan
(Class B Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Developing Markets Fund (the Fund) and by Prudential
Securities Incorporated (Prudential Securities), the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class B shares issued by one
or more investment series of the Fund (each, a Series, and collectively, the
Series). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Trustees of the Fund including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Trustees), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders of its Series that offer Class B
shares. Expenditures under this Plan by the Fund for Distribution Activities
(defined below) are primarily intended to result in the
<PAGE>
sale of Class B shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in Class B shares
of a Series of the Fund, to defray the costs and expenses associated with the
preparation, printing and distribution of prospectuses and sales literature and
other promotional and distribution activities and to provide for the servicing
and maintenance of shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class B shares of the
Fund's Series and to service shareholder accounts using all of the facilities of
the Prudential Securities distribution network including sales personnel and
branch office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund's Series are
referred to herein as "Distribution Activities."
2. Payment of Service Fee
-----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service fee)
of each Series of the Fund. The Fund shall calculate and accrue daily amounts
payable by the Class B
<PAGE>
shares of a Series hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of a Series for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of a
Series hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Trustees may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Rules.
Amounts paid to the Distributor by the Class B shares of a Series will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Series except that distribution expenses attributable to
the Series as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Series' shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Trustees. The allocation of distribution expenses among classes and
Series will be subject to the review of the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch
3
<PAGE>
expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
B shares of a Series of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Series
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than current
shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class B shares of a Series of the
Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Trustees of
the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Fund such additional information as they
shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Trustees of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
4
<PAGE>
5. Effectiveness; Continuation
---------------------------
This Plan became effective on the date of its approval by a vote of a
majority of the Board of Trustees of the Fund and a majority of the Rule 12b-1
Trustees cast in person at a meeting called for the purpose of voting on the
approval of the Plan.
The Plan shall, unless earlier terminated in accordance with its terms,
continue in full force and effect thereafter for so long as such continuance is
specifically approved at least annually by a majority of the Board of Trustees
of the Fund and a majority of the Rule 12b-1 Trustees by votes cast in person at
a meeting called for the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Trustees, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of a Series of
the Fund. The termination of this Agreement with respect to the Class B Shares
of any Series shall not result in the termination of this Agreement with respect
to the Class B Shares of any other Series unless explicitly so provided.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Series of
the Fund that would be affected by
5
<PAGE>
such increase. All material amendments of the Plan shall be approved by a
majority of the Board of Trustees of the Fund and a majority of the Rule 12b-1
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. Rule 12b-1 Trustees
-------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT 99.15(c)
PRUDENTIAL DEVELOPING MARKETS FUND
Distribution and Service Plan
(Class C Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Developing Markets Fund (the Fund) and by Prudential
Securities Incorporated (Prudential Securities), the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by one or
more investment series of the Fund (each, a Series, and collectively, the
Series). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class C shares.
A majority of the Board of Trustees of the Fund, including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Trustees), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders of its Series that offer Class C
shares. Expenditures under this Plan by the Fund for Distribution Activities
(defined below) are primarily intended to result in the
<PAGE>
sale of Class C shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in Class C shares
of a Series of the Fund, to defray the costs and expenses associated with the
preparation, printing and distribution of prospectuses and sales literature and
other promotional and distribution activities and to provide for the servicing
and maintenance of shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class C shares of the
Fund's Series and to service shareholder accounts using all of the facilities of
the Prudential Securities distribution network including sales personnel and
branch office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund's Series are
referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service fee)
of each Series of the
2
<PAGE>
Fund. The Fund shall calculate and accrue daily amounts payable by the Class C
shares of a Series hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of a Series for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of a
Series hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Trustees may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class C shares of a Series will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Series except that distribution expenses attributable to
the Series as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Series' shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Trustees. The allocation of distribution expenses among classes and
Series will be subject to the review of the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
3
<PAGE>
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
C shares of a Series of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Series
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than current
shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to Class C shares of a Series of the
Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Trustees of
the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Fund such additional information as they
shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Trustees of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected
4
<PAGE>
dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
This Plan became effective on the date of its approval by a vote of a
majority of the Board of trustees of the Fund and a majority of the Rule 12b-1
Trustees cast in person at a meeting called for the purpose of voting on the
approval of the Plan.
The Plan shall, unless earlier terminated in accordance with its terms,
continue in full force and effect thereafter for so long as such continuance is
specifically approved at least annually by a majority of the Board of Trustees
of the Fund and a majority of the Rule 12b-1 Trustees by votes cast in person at
a meeting called for the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Trustees, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of a Series of
the Fund. The termination of this Agreement with respect to the Class C Shares
of any Series shall not result in the termination of this Agreement with respect
to the Class C Shares of any other Series unless explicitly so provided.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Series of
the Fund that would be
5
<PAGE>
affected by such increase. All material amendments of the Plan shall be approved
by a majority of the Board of Trustees of the Fund and a majority of the Rule
12b-1 Trustees by votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. Rule 12b-1 Trustees
-------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT 99.15(d)
PRUDENTIAL DEVELOPING MARKETS FUND
Amended and Restated
Distribution and Service Plan
(Class A Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Developing Markets Fund (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor,
as compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority of those Directors/Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors/Trustees), have determined by votes cast
in person at a meeting called for the purpose of voting on this Plan that there
is a reasonable likelihood that adoption and continuation of this Plan will
benefit the Fund and its shareholders. Expenditures under this Plan by the Fund
for Distribution Activities (defined below) are primarily
1
<PAGE>
intended to result in the sale of Class A shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network, including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
-----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall
2
<PAGE>
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine. Amounts payable under the Plan shall
be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors/Trustees. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions and trailer commissions paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions, trailer commissions paid to, or
on account of, agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as the Board shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
4
<PAGE>
The Distributor will inform the Board of Directors/Trustees of the Fund of
the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors/Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the
5
<PAGE>
vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class A shares of the Fund. All material
amendments of the Plan shall be approved by a majority of the Board of
Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. Rule 12b-1 Directors/Trustees
-----------------------------
While the Plan is in effect, the selection and nomination of the
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT 99.15(d)
PRUDENTIAL DEVELOPING MARKETS FUND
Amended and Restated
Distribution and Service Plan
(Class B Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Developing Markets Fund (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors/Trustees), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
B shares
1
<PAGE>
of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated
under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall
2
<PAGE>
calculate and accrue daily amounts payable by the Class B shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the
Plan shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class B shares of
the Fund, including sales commissions and trailer commissions paid to,
or on account of, agents and indirect and overhead costs associated
with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class B shares
of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
4
<PAGE>
The Distributor will inform the Board of Directors/Trustees of the Fund of
the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors/Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class B shares of
the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
5
<PAGE>
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. Rule 12b-1 Directors/Trustees
-----------------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
EXHIBIT 99.15(d)
PRUDENTIAL DEVELOPING MARKETS FUND
Distribution and Service Plan
(Class C Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Developing Markets Fund (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by the Fund
(Class C shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class C shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors/Trustees), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
C shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under
1
<PAGE>
the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class C
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund
2
<PAGE>
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the
Plan shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
3
<PAGE>
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class C shares of
the Fund, including sales commissions and trailer commissions paid to,
or on account of, agents and indirect and overhead costs associated
with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class C shares
of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors/Trustees of the Fund of
the
4
<PAGE>
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors/Trustees of the Fund and a majority of the
Rule 12b-1 Directors/Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors/Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class C shares of
the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the
5
<PAGE>
Investment Company Act) of the Class C shares of the Fund. All material
amendments of the Plan shall be approved by a majority of the Board of
Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. Rule 12b-1 Directors/Trustees
-----------------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998______
6
<PAGE>
EXHIBIT 99.18
PRUDENTIAL DEVELOPING MARKETS FUND
-----------------------------------
(the Fund)
PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares of each separate
investment series offered by the Fund (each referred to as a Series). Any
material amendment to this plan is subject to prior approval of the Board of
Trustees, including a majority of the independent Trustees.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a high initial sales charge and a
- -------------- distribution and/or service fee pursuant to Rule 12b-1 under
the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1% per annum
of the average daily net assets of the class. The initial sales
charge is waived or reduced for certain eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial sales charge but
- -------------- are subject to a high contingent deferred sales charge
(declining from 5% to zero over a six-year period) which will
be imposed on certain redemptions and a Rule 12b-1 fee of not
to exceed 1% per annum of the average daily net assets of the
class. The contingent deferred sales charge is waived for
certain eligible investors. Class B shares automatically
convert to Class A shares approximately seven years after
purchase.
CLASS C SHARES: Class C shares are not subject to an initial sales charge but
- -------------- are subject to a low contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee not to exceed 1% per annum of
the average daily net assets of the class.
Class Z SHARES: Class Z shares are not subject to either an initial or
- -------------- contingent deferred sales charge nor are they subject to any
Rule 12b-1 fee.
<PAGE>
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the net asset value of that class in relation to the net asset
value of the applicable Series of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by a Series to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class may be different from that paid by another
class because of Rule 12b-1 fees and other expenses borne exclusively by
that class.
EXCHANGE PRIVILEGE
Holders of Class A Shares, Class B Shares, Class C Shares and Class Z
Shares shall have such exchange privileges as set forth in the Series'
current prospectus. Exchange privileges may vary among classes and among
holders of a Class.
CONVERSION FEATURES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be
effected at relative net asset value without the imposition of any
additional sales charge.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
and each Series for the existence of any material conflicts among the
interests of its several classes. The Trustees, including a majority of
the
<PAGE>
independent Trustees, shall take such action as is reasonably necessary to
eliminate any such conflicts that may develop. Prudential Investments Fund
Management LLC, the Fund's Manager, will be responsible for reporting any
potential or existing conflicts to the Trustees.
C. For purposes of expressing an opinion on the financial statements of the
Fund and/or a Series, the methodology and procedures for calculating the
net asset value and dividends/distributions of the Series' several classes
and the proper allocation of income and expenses among such classes will be
examined annually by the Fund's independent auditors who, in performing
such examination, shall consider the factors set forth in the relevant
auditing standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Dated: June 1, 1998
