<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1998
REGISTRATION NO. 333-
811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. / /
(Check appropriate box or boxes)
------------------------
PRUDENTIAL TAX-MANAGED EQUITY FUND
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7525
MARGUERITE E.H. MORRISON, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
Title of Securities Being Registered...Shares of Beneficial Interest, $.001
par value per share.
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.
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<PAGE>
FUND TYPE:
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STOCK
INVESTMENT OBJECTIVE:
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LONG-TERM AFTER-TAX GROWTH OF CAPITAL
The Fund's Distributor will solicit subscriptions for the Fund's shares during a
subscription period expected to last from __________ 1999 to __________ 1999.
The Fund expects to begin a continuous offering of its shares on __________
1999.
PRUDENTIAL TAX-MANAGED
EQUITY FUND
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PROSPECTUS: __, 1999
As with all mutual funds, filing this prospectus with the Securities and
Exchange Commission does not mean that the SEC has judged this Fund a good
investment, nor has the SEC determined that this prospectus is complete or
accurate. It is a criminal offense to state otherwise.
[LOGO]
<PAGE>
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TABLE OF CONTENTS
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2 Risk/Return Summary
2 Investment Objective and Principal Strategies
2 Principal Risks
3 Shareholder Fees and Expenses
5 How the Fund Invests
5 Investment Objective and Policies
6 Other Investments
8 Derivative Strategies
8 Additional Strategies
9 Investment Risks
12 How the Fund is Managed
12 Manager
12 Investment Adviser
12 Portfolio Manager
12 Distributor
13 Year 2000
14 Fund Distributions and Tax Issues
14 Distributions
15 Tax Issues
16 If You Sell or Exchange Your Shares
17 How to Buy, Sell and Exchange Shares of the Fund
17 Initial Offering of Shares
17 How to Buy Shares
25 How to Sell Your Shares
26 How to Exchange Your Shares
29 The Prudential Mutual Fund Family
For More Information (Back Cover)
1
<PAGE>
RISK / RETURN SUMMARY
This section highlights key information about the Prudential Tax-Managed Equity
Fund, a new mutual fund, which we refer to as "the Fund." Additional
information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is long-term after-tax growth of capital. We seek
investments that will appreciate over time. We also try to reduce the taxes
shareholders pay on the Fund's investment income and capital gains. We
normally invest at least 65% of the Fund's total assets in equity- related
securities, such as common stock and convertible securities, of U.S.
companies. About half of the portfolio will be managed in a "growth" style
and the rest in a "value" style.
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A DIVERSIFIED CORE HOLDING
In deciding which stocks to buy, we invest in stocks that we believe are
experiencing superior absolute and relative earnings growth. In addition, we
invest in stocks believed to be undervalued given the companies' earnings,
assets, cash flows and dividends. Using this approach, we seek reasonable
growth with an eye toward minimizing risk.
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PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in stock, there is the risk that the price of a particular
stock we own could go down. Generally, the stock price of large companies is
more stable than the stock price of medium-sized and small companies, but this
is not always the case. In addition to an individual stock losing value, the
value of the equity markets as a whole could go down.
The Fund uses hedging techniques to help reduce taxes, including the purchase of
options, equity collars, short sales against-the-box and the sale of stock index
futures contracts. These strategies may present above average risks.
THE FUND IS DESIGNED FOR LONG-TERM TAXABLE INVESTORS. If you are investing
for the short term (less than 1 year), you may suffer negative tax consequences.
While the Fund tries to reduce the extent to which shareholders incur taxes on
Fund distributions of income and net realized gains, the Fund still may
distribute taxable income or gains from time to time.
Some of our investment strategies - as well as foreign investments that we
may make-also involve risk. Like any mutual fund, an investment in the Fund
could lose value, and you could lose money. For more information about the risks
associated with the Fund, see "Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
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SHAREHOLDER FEES AND EXPENSES
This table shows the sales charges, fees and expenses for each share class of
the Fund-Class A, B, C and Z. Each share class has different sales charges -
known as loads - and expenses, but represents an investment in the same fund.
Class Z shares are available only to a limited group of investors. For more
information about which share class may be right for you, see "How to Buy, Sell
and Exchange Shares of the Fund."
SHAREHOLDER FEES(1) Paid Directly from Your Investment
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering price) 5% None 1% None
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Maximum deferred sales charge
(load) (as a percentage of
the lower of original
purchase price or sale
proceeds) None 5%(2) 1%(3) None
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Maximum sales charge (load)
imposed on reinvested
dividends and other
distributions None None None None
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Redemption fees None None None None
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Exchange fee None None None None
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Maximum account fee None None None None
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</TABLE>
ANNUAL FUND OPERATING EXPENSES Deducted from Fund Assets
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
<S> <C> <C> <C> <C>
Management fees .65% .65% .65% .65%
+ Distribution (12b-1) and
service fees .30%(4) 1.00% 1.00% None
+ Other expenses(5) .31% .31% .31% .31%
= Total annual Fund operating 1.26% 1.96% 1.96% .96%
expenses
</TABLE>
(1) The maximum sales charges permitted by the National Association of
Securities Dealers, Inc. may not exceed 6.25% of total gross sales per
class. Because of 12b-1 fees, long-term shareholders may pay more than
6.25% of their investment in shares of the Fund. Your broker may charge
you a separate or additional fee for purchases and sales of shares.
(2) The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
3
<PAGE>
(3) The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
(4) The Distributor of the Fund has voluntarily agreed to reduce its
distribution and service fees for Class A shares to .25 of 1% of the
average daily net assets of the Class A shares. This voluntary reduction
may be terminated at any time without notice. With this reduction, Total
annual Fund operating expenses are 1.21%.
(5) Other expenses are estimated, since this is a new fund.
FEES AND EXPENSES EXAMPLE
This example will help you compare the fees and expenses of the Fund's
different share classes.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 yr 3 yrs
<S> <C> <C>
Class A shares 62 88
Class B shares 70 92
Class C shares 40 71
Class Z shares 10 31
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
1 yr 3 yrs
<S> <C> <C>
Class A shares 62 88
Class B shares 20 62
Class C shares 30 71
Class Z shares 10 31
</TABLE>
4
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is LONG-TERM AFTER-TAX GROWTH OF CAPITAL. This
means we seek investments that will appreciate over time. We also try to reduce
the taxes shareholders pay on the Fund's investment income and capital gains.
While we make every effort to achieve our objective, we can't guarantee success.
In pursuing our objective, we normally invest at least 65% of the Fund's total
assets in equity - related securities, such as COMMON STOCK and CONVERTIBLE
SECURITIES, of U.S. companies.
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OUR TAX-MANAGED APPROACH
Taxes are a major influence on the net returns that you receive on your taxable
investments. There are four components of the returns of an equity mutual fund
- -price appreciation, distributions of income, distributions of realized
short-term capital gains and distributions of long-term capital gains.
Distributions of net investment income and net realized short-term gains (on
stocks held one year or less) are taxed as ordinary income, at rates as high as
39.6%. Distributions of realized long-term gains (on stocks held more than one
year) are taxed at rates up to 20%. Price appreciation (an unrealized gain) is
not subject to current federal tax. We try to achieve long-term after-tax
returns for you by managing our investments so as to reduce and defer the taxes
you incur as a result of your investment in the Fund. [We try to achieve
returns primarily in the form of unrealized capital gains, and you would not pay
taxes on them until you sell your shares.]
- --------------------------------------------------------------------------------
We buy common stock and convertible securities of companies of every size -
small, medium and large capitalization. Convertible securities are securities -
like bonds, corporate notes and preferred stock - that can be converted into the
company's common stock or some other equity security. The Fund also invests in
other EQUITY-RELATED SECURITIES, including preferred stock, warrants and rights
that can be exercised to obtain stock, investments in various types of business
ventures, including partnerships and joint ventures, and securities - like
American Depositary Receipts (ADRs) - which are certificates representing the
right to receive foreign securities that have been deposited with a U.S. bank
(or a foreign branch of a U.S. bank).
Our strategy is long-term capital appreciation while reducing the taxes you
incur from investment income and realized capital gains. We try to reduce taxes
on realized capital gains by maintaining relatively low portfolio turnover and
generally avoiding short-term capital gains. We also try to reduce taxes on
investment income by investing in lower-yielding equity securities. However, a
portion of the Fund's securities may offer high potential capital appreciation
and a yield component.
We sometimes may defer the sale of a security until the realized capital
gain would qualify as a long-term capital gain. We also may sell a security to
realize a capital loss that can be used to offset realized capital gains. When
selling a portion of a holding, we may sell those securities with
5
<PAGE>
a higher cost basis first. The portfolio managers may employ tax-advantaged
hedging techniques such as using options to protect the value of a holding
without selling the security.
The Fund combines the efforts of two portfolio managers, each with a
different investment style. By including both a "growth" and a "value" stock
picking style in a single mutual fund, the Manager believes that the overall
volatility of returns can be lessened and the Fund may serve as a core holding
in many investors' portfolios.
Each portfolio manager selects portfolio securities independently, so it is
possible that a security held by one portfolio segment may also be held by the
other portfolio segment. The Manager will coordinate the activities of the
portfolio managers so that one is not buying a security that the other intends
to sell. Also, when a decision is made to sell an appreciated security held by
both portfolio managers, the Manager will ensure that, to the extent possible,
the share lots selected for sale will be those with holding periods long enough
to qualify for long-term capital gains treatment.
For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Fund, Its Investments and Risks."
The Statement of Additional Information - which we refer to as the SAI -
contains additional information about the Fund. To obtain a copy, see the back
cover page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Fund can change
investment policies that are not fundamental.
OTHER INVESTMENTS
We may also use the following investment strategies to increase the Fund's
returns or protect its assets if market conditions warrant.
FOREIGN SECURITIES
We may invest up to 35% of the Fund's total assets in FOREIGN SECURITIES,
including money market instruments and other fixed-income securities, common
stock and other equity-related securities. For purposes of this limitation, we
do not consider ADRs and other similar receipts or shares to be foreign
securities.
REAL ESTATE INVESTMENT TRUSTS
We may invest in the securities of real estate investment trusts known as REITS.
REITs are like corporations, except that they do not pay income taxes if they
meet certain IRS requirements. However, while REITs themselves do not pay income
taxes, the distributions they make to investors are taxable. REITs invest
primarily in real estate and distribute almost all of their income - most of
which comes from rents, mortgages and gains on sales of property - to
shareholders.
6
<PAGE>
DEBT OBLIGATIONS
The Fund may invest up to 5% of its total assets in any type or quality of
DEBT OBLIGATIONS.
MONEY MARKET INSTRUMENTS
If we believe it is necessary, we may temporarily invest up to 100% of the
Fund's assets in MONEY MARKET INSTRUMENTS. We also may temporarily hold cash or
high quality foreign or domestic money market instruments until we invest the
proceeds of new Fund sales or to meet ordinary daily cash needs. Investing
heavily in these securities limits our ability to achieve capital appreciation
but may help to preserve the Fund's assets when the equity markets are unstable.
7
<PAGE>
DERIVATIVE STRATEGIES
TAX-ADVANTAGED HEDGING
To protect against price declines in our holdings that have developed large
accumulated capital gains, we may use hedging techniques to help reduce taxes,
including the purchase of put options on securities held, equity collars
(combining the purchase of a put option and the sale of a call option), short
sales against-the-box on securities held and the sale of stock index futures
contracts. Using these techniques rather than selling these securities may
reduce exposure to price declines in certain securities without realizing
substantial capital gains under current tax law. Our ability to use short sales
against-the-box and certain equity collar strategies as a tax management
technique for holdings of appreciated securities is limited - the hedging
transaction must be closed out within thirty days after the end of the taxable
year. Our ability to use different tax-management strategies may be limited in
the future by market volatility, excessive shareholder redemptions or changes in
tax law.
We expect that by using various tax management strategies, we can reduce the
extent to which you incur taxes on Fund distributions of income and net realized
gains. Even so, we may distribute taxable income or gains from time to time.
OTHER DERIVATIVE STRATEGIES
We may use a number of alternative investment strategies - including DERIVATIVES
- - to try to improve the Fund's returns or protect its assets, although we cannot
guarantee they will work. Derivatives - such as futures, options, foreign
currency forward contracts and options on futures - involve costs and can be
volatile. With derivatives, the investment adviser tries to predict whether the
underlying investment (a security, market index, currency, interest rate or some
other investment) will go up or down at some future date. We may use derivatives
to try to reduce risk or to increase return consistent with the Fund's overall
investment objective. Any derivatives we may use may not match the Fund's
underlying holdings.
For more information about these strategies, see the SAI, "Description of the
Fund, Its Investments and Risks - Hedging and Return Enhancement Strategies."
ADDITIONAL STRATEGIES
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.
The Fund also follows certain policies when it: BORROWS MONEY (the Fund can
borrow up to 33 1/3% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 33 1/3% of the value of its total assets,
including collateral received in the transaction); and holds ILLIQUID SECURITIES
(the Fund may hold up to 15% of its net assets in illiquid securities, including
restricted securities, those without a readily available market and repurchase
agreements with maturities longer than seven days). The Fund is subject to
certain investment restrictions that are
8
<PAGE>
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. This chart outlines the key risks and potential rewards of the Fund's
principal investments. See, too, "Description of the Fund, Its Investments and
Risks" in the SAI.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INVESTMENT TYPE RISKS POTENTIAL REWARDS
% OF FUND'S TOTAL ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
STOCKS AND CONVERTIBLE - Individual stocks could - Historically, stocks
SECURITIES OF U.S. lose value have out-performed
COMPANIES other investments over
- The equity markets could the long term
At least 65% go down
- Generally, economic
- Changes in economic or growth means higher
political conditions corporate profits,
which leads to an
increase in stock
prices, known as
capital appreciation
- --------------------------------------------------------------------------------
FOREIGN SECURITIES - Foreign markets, - Investors can
economies and political participate in the
Up to 35% systems may not be as growth of foreign
stable as in the U.S. markets and companies
operating in those
- Currency risk markets
- May be less liquid than - Opportunities for
U.S. stocks diversification
- Differences in foreign
laws, accounting
standards and public
information
- --------------------------------------------------------------------------------
REAL ESTATE - Performance depends - Real estate holdings
INVESTMENT on the strength of real can generate good
TRUSTS (REITs) estate markets, REIT returns from rents,
Up to 25% management and rising market values,
property management etc.
which can be affected by
many factors, including - Greater
national and regional diversification
economic conditions than direct ownership
- Low correlation to
stocks and bonds
9
<PAGE>
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INVESTMENT TYPE RISKS POTENTIAL REWARDS
% OF FUND'S TOTAL ASSETS
- --------------------------------------------------------------------------------
DERIVATIVES - Derivatives such as - Hedges that correlate
futures, options and well with the
Percentage varies foreign currency forward underlying positions
contracts that are can reduce or
used to avoid taxes may eliminate investment
not fully offset the income or capital
underlying positions and gains at low cost
this could result in
losses to the Fund that - The Fund could make
would not have otherwise money and protect
occurred (1) against losses if the
investment analysis
- Derivatives used for proves correct
risk management may not
have the intended - Derivatives that
effects and may result involve leverage could
in losses or missed generate substantial
opportunities gains at low cost
- The counterparty to a - One way to manage
derivatives contract the Fund's risk/return
could default balance by locking in
the value of an
- Derivatives that involve investment ahead of
leverage could magnify time
losses
- [May reduce exposure
- Certain types of to price declines
derivatives involve without realizing
costs to the Fund which substantial capital
can reduce returns gains]
- Tax law changes may
limit the effectiveness
of some strategies
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10
<PAGE>
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ILLIQUID SECURITIES - May be difficult to - May offer a more
value precisely attractive yield or
Up to 15% of net assets potential for growth
- May be difficult to sell than more widely
at the time or price traded securities
desired
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DEBT OBLIGATIONS - Credit risk-the risk - Generally more
Up to 5% that the borrower can't secure than stock
pay back the money since companies must
borrowed or make interest pay their debts before
payments they pay dividends
- Market risk-the risk
that debt instruments may
lose value in the market
because interest rates
change or there is a
lack of confidence in
the borrower
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MONEY MARKET INSTRUMENTS - Limits potential for - May preserve the
Up to 100% on a capital appreciation Fund's assets
temporary basis
- See Credit risk and
Market risk
</TABLE>
- --------------------
(1) An option is the right to buy or sell securities in exchange for a premium.
A futures contract is an agreement to buy or sell a set quantity of an
underlying product at a future date, or to make or receive a cash payment based
on the value of a securities index. A foreign currency forward contract is an
obligation to buy or sell a given currency on a future date and at a set price.
11
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HOW THE FUND IS MANAGED
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. The Fund pays PIFM
management fees of .65% of the Fund's average net assets.
As of December 31, 1998, PIFM served as the manager to all __ of the
Prudential Mutual Funds, and as manager or administrator to __ closed-end
investment companies, with aggregate assets of approximately $__ billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, known as Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102. PIFM has responsibility for all investment advisory
services, supervises Prudential Investments and reimburses Prudential
Investments for its reasonable costs and expenses.
PORTFOLIO MANAGER
Jeff Rose, CFA, manages the growth portion of the Fund. He is Vice President
and Portfolio Manager of Prudential Investments, which he joined in 1994 as an
equity analyst. Prior to that, he co-managed a portfolio of private debt and
equity securities for Prudential Capital Group (May 1992-June 1994). He also
serves as a portfolio manager of the equity portion of Prudential Balanced Fund
and Prudential Gibraltar Fund, a variable annuity.
David A. Kiefer, CFA, manages the value portion of the Fund. He is a Managing
Director and Senior Portfolio Manager of Prudential Investments, which he joined
in 1992 as an equity analyst. He is the portfolio manager of Prudential Utility
Fund, Inc. and co-manages separate accounts focused on tax-managed value
investments.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees-known as
12b-1 fees-are shown in the "Shareholder Fees and Expenses" table.
12
<PAGE>
YEAR 2000
Many computer systems used today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded. This could be a problem when the year
2000 arrives and could affect securities trades, interest and dividend payments,
pricing and account services. Although we cannot guarantee that this will not be
a problem, the Fund's service providers have been working on adapting their
computer systems. They expect that their systems, and the systems of their
service providers, will be ready for the year 2000.
In addition, issuers of securities may also encounter year 2000 compliance
problems. If these problems are significant and are not corrected, securities
markets could go down or issuers could have poor performance. If the Fund owns
these securities, then it is possible that the Fund could lose money.
13
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, while the Fund tries to reduce their amount, the Fund
distributes DIVIDENDS and CAPITAL GAINS, if any, to shareholders. These
distributions are subject to taxes, unless you hold your shares in a 401(k)
plan, an Individual Retirement Account (IRA) or some other qualified
tax-deferred plan or account. THE FUND IS DESIGNED FOR LONG-TERM TAXABLE
INVESTORS.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless your shares are
held in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues
you should be aware of, but is not meant to be tax advice. For tax advice,
please speak with your tax adviser.
DISTRIBUTIONS
The Fund may realize taxable gains even though it tries to reduce them. The
Fund also tries to reduce taxable dividend distributions, but believes it will
distribute some taxable income.
The Fund distributes DIVIDENDS of any net investment income to shareholders once
a year. For example, if the Fund owns ACME Corp. stock and the stock pays a
dividend, the Fund will pay out a portion of this dividend to its shareholders,
assuming the Fund's income is more than its costs and expenses. The dividends
you receive from the Fund will be taxed as ordinary income, whether or not they
are reinvested in the Fund.
The Fund also distributes CAPITAL GAINS to shareholders - typically once a
year - which are generated when the Fund sells its assets for a profit. For
example, if the Fund bought 100 shares of ACME Corp. stock for a total of $1,000
and later sold the shares for a total of $1,500, the Fund has capital gains of
$500, which it will pass on to shareholders (assuming the Fund's total gains are
greater than any losses it may have). Capital gains are taxed differently
depending on how long the Fund holds the security - if a security is held more
than one year before it is sold, LONG-TERM capital gains are taxed at the rate
of 20%, but if the security is held for less than a year, SHORT-TERM capital
gains are taxed at rates up to 39.6%.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a broker you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.
14
<PAGE>
TAX ISSUES
FORM 1099
During the tax season every year, you will receive a Form 1099, which reports
the amount of dividends and capital gains we distributed to you during the prior
year. [If you own shares of the Fund as part of a qualified tax-deferred plan or
account, your taxes are deferred, so you will not receive a Form 1099.
However, you will receive a Form 1099 when you take any distributions from your
qualified tax-deferred plan or account].
Fund distributions are generally taxable to you in the year they are received,
except when we declare certain dividends in the fourth quarter and actually pay
them in January of the following year. In such cases, the dividends are treated
as if they were paid on December 31 of the prior year. Corporate shareholders
are eligible for the 70% dividends-received deduction for certain dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do this, we
will withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to you
as a shareholder of record. As explained above, the distribution may be subject
to income or capital gains taxes. When dividends are paid out, the value of
each share of the Fund decreases by the amount of the dividend and the market
changes (if any) to reflect the payout. The distribution you receive makes up
for the decrease in share value. However, the timing of your purchase does mean
that part of your investment came back to you as taxable income.
RETIREMENT PLANS
[THE FUND IS NOT DESIGNED FOR RETIREMENT PLANS AND ACCOUNTS which allow you to
defer paying taxes on investment income and capital gains.] Contributions to
these plans may also be tax deductible, although distributions from these plans
generally are taxable. In the case of Roth IRA accounts - available to certain
taxpayers beginning in 1998 - contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your broker or a
Prudential professional for information on a variety of Prudential Mutual Funds
that are suitable for retirement plans offered by Prudential.
15
<PAGE>
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax, unless you hold shares in a qualified
tax-deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.
CAPITAL GAIN
(taxes owed)
$
RECEIPTS OR
FROM SALE
CAPITAL LOSS
(offset against gain)
Exchanging your shares of the Fund for the shares of another Prudential
Mutual Fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099. Therefore, [unless you hold your shares in a
qualified tax-deferred plan or account], you or your financial adviser should
keep track of the dates on which you buy and sell - or exchange - Fund shares,
as well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares - which happens automatically approximately seven years after
purchase - is not a "taxable event" because it does not involve an actual sale
of your Class B shares. This opinion, however, is not binding on the IRS. For
more information about the automatic conversion of Class B shares, see "Class B
Shares Convert to Class A Shares After Approximately Seven Years" in the next
section.
16
<PAGE>
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
INITIAL OFFERING OF SHARES
PIMS will solicit subscriptions for Class A, Class B, Class C and Class Z
shares of the Fund during a subscription period beginning January 28, 1999
and expected to end February 28, 1999. Fund shares subscribed for during
this time will be issued at a net asset value of $10.00 per share on a
closing date expected to occur on March 22, 1999. An initial sales charge of
5% (5.26% of the net amount invested) is imposed on each transaction in Class
A shares. This initial sales charge may be reduced, depending on the amount
of the purchase as shown in the table under "Reducing or Waiving Class A's
Initial Sales Charge." An initial sales charge of 1% (1.01% of the net amount
invested) is imposed on each transaction in Class C shares. Your broker will
notify you of the end of the subscription period. Payment for Fund shares
will be due within three days. If you send an order during the subscription
period along with payment, your money will be returned unless you allow the
money to be invested in Prudential MoneyMart Assets, Inc. (MoneyMart Fund), a
money market fund. If this is your first investment in MoneyMart Fund, all
amounts received and invested in MoneyMart Fund, including any dividends
received on these funds, will be automatically invested in this Fund on the
closing date. If you previously owned shares of MoneyMart Fund, dividends
accrued on your shares will not be exchanged for Fund shares. You will not
receive share certificates. The minimum initial investment is $1,000 for
Class A and Class B shares and $2,500 for Class C shares. There are no
minimum investment requirements for Class Z shares and for
[certain retirement and employee savings plans or] custodial accounts for
minors.
If you subscribe for shares, you will not have any rights as a shareholder of
the Fund until your shares are paid for and their issuance has been reflected
in the Fund's books. We reserve the right to withdraw, modify or terminate
the initial offering without notice and to refuse any order in whole or in
part. We anticipate that a continuous offering of Fund shares will begin on
March 22, 1999.
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After PMFS
receives your completed application, you will receive an account number. For
additional information about purchasing shares of the Fund, see the back cover
page of this prospectus. We have the right to
17
<PAGE>
reject any purchase order (including an exchange into the Fund) or suspend or
modify the Fund's sale of its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within certain time periods (that is why it is called a
Contingent Deferred Sales Charge, or CDSC), but the operating expenses each year
are higher than the Class A share expenses. With Class C shares, you pay a low
front-end sales charge and a low CDSC, but the operating expenses are also
higher than the expenses for Class A shares.
WHEN CHOOSING A SHARE CLASS, YOU SHOULD CONSIDER THE FOLLOWING:
- - The amount of your investment
- - The length of time you expect to hold the shares and the impact of the
varying distribution fees
- - The different sales charges that apply to each share class-Class A's front-
end sales charge vs. Class B's CDSC vs. Class C's low front-end sales
charge and low CDSC
- - Whether you qualify for any reduction or waiver of sales charges
- - The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
- - Whether you qualify to purchase Class Z shares
18
<PAGE>
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
<S> <C> <C> <C> <C>
Minimum purchase amount(1) $1,000 $1,000 $2,500 None
Minimum amount for
subsequent purchases(1) $100 $100 $100 None
Maximum initial sales charge 5% of the public None 1% of the None
offering price public
offering
price
Contingent Deferred Sales
Charge (CDSC)(2) None If sold 1% on None
during: sales made
Year 1 5% within 18
Year 2 4% months of
Year 3 3% purchase(2)
Year 4 2%
Year 5/6 1%
Year 7 0%
Annual distribution (12b-1) .30 of 1% (.25 of 1% 1% None
and service fees (shown as a 1% currently)
percentage of average net
assets)(3)
</TABLE>
(1) The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts for minors. The minimum
initial and subsequent investment for purchases made through the Automatic
Investment Plan is $50. For more information, see "Additional Shareholder
Services-Automatic Investment Plan."
(2) For more information about the CDSC and how it is calculated, see
"Contingent Deferred Sales Charges (CDSC)."
(3) These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
19
<PAGE>
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales charge by
increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % Dealer
Amount of purchase of offering price of amount invested reallowance
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above(1) None None None
</TABLE>
(1) If you invest $1 million or more, you can buy only Class A shares, unless
you qualify to buy Class Z shares.
To satisfy the purchase amounts above, you can:
- - invest with an eligible group of related investors;
- - buy the Class A shares of two or more Prudential Mutual Funds at the same
time;
- - use your RIGHTS OF ACCUMULATION, which allow you to combine the value of
Prudential Mutual Fund shares you already own with the value of the shares
you are purchasing for purposes of determining the applicable sales charge;
or
- - sign a LETTER OF INTENT, stating in writing that you or an eligible group
of related investors will purchase a certain amount of shares in the Fund
and other Prudential Mutual Funds within 13 months.
BENEFIT PLAN. Benefit Plans can avoid Class A's initial sales charges if the
Benefit Plan has existing assets of at least $1 million invested in shares of
Prudential Mutual Funds (excluding money market funds other than those acquired
under the exchange privilege) or 250 eligible employees or participants. For
these purposes, a Benefit Plan is a pension, profit-sharing or other employee
benefit plan qualified under Section 401 of the Internal Revenue Code, a
deferred compensation or annuity plan under Sections 457 and 403(b)(7) of the
Internal Revenue Code or a non-qualified deferred compensation plan sponsored by
an employer that has a tax-qualified benefit plan with Prudential. Class A
shares may also be purchased without a sales charge by participants who are
repaying loans from Benefit Plans where Prudential (or its affiliates) provides
administrative or recordkeeping services, sponsors the product or provides
account services.
20
<PAGE>
[Certain Prudential retirement programs - such as PruArray Association Benefit
Plans and PruArray Savings Programs - may also be exempt from Class A's sales
charges. For more information, see the SAI or contact your Prudential
professional. In addition, waivers are available to investors in certain
programs sponsored by brokers, investment advisers and financial planners who
have agreements with Prudential Investments Advisory Group relating to:
- - Mutual fund "wrap" or asset allocation programs where the sponsor places
Fund trades and charges its clients a management, consulting or other fee
for its services;
- - Mutual fund "supermarket" programs where the sponsor links its customers'
accounts to a master account in the sponsor's name; or
- - Retirement programs where Prudential provides no administrative services.]
OTHER TYPES OF INVESTORS. Other investors may pay no sales charges,
including certain officers, employees or agents of Prudential and its
affiliates, Prudential Mutual Funds, the subadvisers of the Prudential Mutual
Funds and of brokers that have entered into a selected dealer agreement with the
Distributor. To qualify for a reduction or waiver of sales charges, you must
notify the Transfer Agent or your broker at the time of your purchase. For more
information about reducing or eliminating Class A's sales charge, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares - Reduction and Waiver of
Initial Sales Charges - Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
Benefit Plans. Benefit Plans (as defined above) may purchase Class C shares
without paying an initial sales charge. Class C shares may also be purchased
without an initial sales charge by participants who are repaying loans from
Benefit Plans where Prudential (or its affiliates) provides administrative or
recordkeeping services, sponsors the product or provides account services.
Prudential Retirement Plans. The initial sales charge will be waived for
purchases of Class C shares by both qualified and non-qualified retirement and
deferred compensation plans participating in the PruArray Plan and other plans
if Prudential also provides administrative or recordkeeping services.
Investments of Redemption Proceeds from Other Investment Companies. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. Such purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must:
- purchase your shares through an account at Prudential Securities
- purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation
21
<PAGE>
- purchase your shares through other brokers
This waiver is not available to investors who purchase shares directly from the
Transfer Agent. If you are entitled to the waiver, you must notify either the
Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers to be appropriate.
QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
- - Any Benefit Plan as defined above, and certain nonqualified plans, provided
the Benefit Plan-in combination with other plans sponsored by the same
employer or group of related employers-has at least $50 million in defined
contribution assets
- - Participants in any fee-based program sponsored by Prudential or an
affiliate which includes mutual funds as investment options and the Fund as
an available option
- - Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available option
- - Benefit Plans for which an affiliate of the Distributor serves as
recordkeeper and as of September 20, 1996 were either Class Z shareholders
of the Prudential Mutual Funds or executed a letter of intent to purchase
Class Z shares of the Prudential Mutual Funds
- - Current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund)
- - Employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan
- - Prudential with an investment of $10 million or more
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class Z shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the
number of Class B shares converted if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares -
Conversion Feature - Class B Shares."
22
<PAGE>
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value.
The share value of a mutual fund-known as the NET ASSET VALUE or NAV - is
determined by a simple calculation - it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. For
example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund-or the NAV - is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report
the NAVs of most mutual funds, which allows investors to price mutual funds
daily.
MUTUAL FUND SHARES
- --------------------------------------------------------------------------------
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock
in its portfolio and the price of ACME stock goes up, while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.
- --------------------------------------------------------------------------------
We determine the NAV of our shares once each business day at 4:15 p.m. New York
Time on days that the New York Stock Exchange is open for trading. We do not
determine NAV on days when we have not received any orders to purchase, sell or
exchange, or when changes in the value of the Fund's portfolio do not materially
affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND? For Class A and Class C shares,
you'll pay the public offering price, which is NAV next determined after we
receive your order to purchase, plus an initial sales charge (unless you're
entitled to a waiver). For Class B and Class Z shares, you will pay the NAV next
determined after we receive your order to purchase (remember, there are no
up-front sales charges for these share classes). Your broker may charge you a
separate or additional fee for purchases of shares.
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out - or distributes - its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends:
23
<PAGE>
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement
plans for individuals and institutions, including large and small businesses.
For information on IRAs, including Roth IRAs, or SEP-IRAs for a one-person
business, please contact your broker or a Prudential professional. If you are
interested in opening a 401(k) or other company-sponsored retirement plan
(SIMPLES, SEP plans, Keoghs, 403(b)(7) plans, pension and profit-sharing plans),
your broker or a Prudential professional will help you determine which
retirement plan best meets your needs. Complete instructions about how to
establish and maintain your plan and how to open accounts for you and your
employees will be included in the retirement plan kit you receive in the mail.
THE PRUTECTOR PROGRAM. Optional group term life insurance -which protects the
value of your Prudential Mutual Fund investment for your beneficiaries against
market downturns - is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and
is not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household.
24
<PAGE>
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund-also known as redeeming your shares-the price
you will receive will be the NAV next determined after the Transfer Agent, the
Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York time to
process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days after
the Transfer Agent receives your sell order. If you hold shares through a
broker, payment will be credited to your account. If you are selling shares you
recently purchased with a check, we may delay your sale until your check clears,
which can take up to 10 days. Your broker may charge you a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. If you invest by check, we will only process
your redemptions after your check clears. This can take up to 10 calendar days.
You can avoid delays if you purchase shares by wire, certified check or
cashier's check. For more information, see the SAI, "Purchase, Redemption and
Pricing of Fund Shares - Sale of Shares."
If you hold your shares directly with the Transfer Agent, you may have to have
the signature on your sell order guaranteed by a financial institution. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares -
Sale of Shares - Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGES (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
- - Amounts representing shares you purchased with reinvested dividends and
distributions
- - Amounts representing the increase in NAV above the total amount of payments
for shares made during the past six years
- - Amounts representing the cost of shares held beyond the CDSC period (six
years for Class B shares and 18 months for Class C shares)
25
<PAGE>
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid - or at least
minimize-the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to the value of your oldest
shares first. To value these shares, we will use the original purchase price or
the current value, whichever is less.
As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC of 1% for Class C shares - which is applied to
shares sold within 18 months of purchase - is the lesser of the original
purchase price or the redemption proceeds. For purposes of determining how long
you've held your shares, all purchases during the month are grouped together and
considered to have been made on the last day of the month.
The CDSC will be calculated from the first day of the month after initial
purchase, excluding any time shares were held in a money market fund.
WAIVER OF THE CDSC-CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
- - After a shareholder is deceased or disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares owned in joint tenancy (with
rights of survivorship), provided the shares were purchased before the
death or disability
- - To provide for certain distributions-made without IRS penalty-from a tax-
deferred retirement plan, IRA or Section 403(b) custodial account
- - On certain sales from a Systematic Withdrawal Plan
For more information, see the SAI, "Purchase, Redemption and Pricing of
Fund Shares - Waiver of Contingent Deferred Sales Charges-Class B Shares."
WAIVER OF THE CDSC - CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived for purchases of Class C
shares by both qualified and nonqualified retirement and deferred compensation
plans participating in the PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions sponsored by Prudential and its affiliates to the extent that the
redemption proceeds are invested in the Guaranteed Investment Account, a group
annuity insurance product sponsored by Prudential, the Guaranteed Insulated
Separate Account, a separate account offered by Prudential, and shares of the
Stable Value Fund, an unaffiliated bank collective fund.
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which the
broker provides administrative or recordkeeping services.
26
<PAGE>
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate numbers of shares
to reflect the amount of the CDSC you paid. In order to take advantage of this
privilege, you must notify the Transfer Agent or your broker at the time of the
repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund Shares -
Sale of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from your retirement account, call
your broker or the Transfer Agent for a distribution request form. There are
special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to avoid delay. If your retirement plan account is held for you by your employer
or plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential Mutual Funds-including certain money market funds - if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential Mutual Fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
B and Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. We may change the terms of the
exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
27
<PAGE>
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX: 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange - and
then sell - Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B shares into a
money market fund, the time you hold the shares in the money market account will
not be counted for purposes of calculating the required holding period for CDSC
liability.
Remember, as we explained in the section entitled "If You Sell or Exchange
Your Shares," exchanging shares is considered a sale for tax purposes.
Therefore, if the shares you exchange are worth more than you paid for them, you
may have to pay capital gains tax. For additional information about exchanging
shares, see the SAI, "Shareholder Investment Account - Exchange Privilege".
If you own Class B or Class C shares and qualify to purchase either Class A
shares without paying an initial sales charge or Class Z shares, we will
automatically exchange your Class B or Class C shares which are not subject to a
CDSC for Class A or Class Z shares, as appropriate. We make such exchanges on a
quarterly basis, if you notify the Transfer Agent that you qualify for this
exchange privilege. The Fund has received a legal opinion that this exchange
is not a "taxable event" for federal income tax purposes, but the opinion is not
binding on the IRS.
FREQUENT TRADING
You should not use the Fund for frequent trading in response to short-term
changes in the market. Doing this makes it harder for us to efficiently manage
the Fund, and it also increases transaction costs. If we believe you are engaged
in this kind of trading, we reserve the right to refuse any of your purchase
orders or exchanges. The Fund will reject all exchanges and purchases from any
person or group that we believe is following a market timing strategy unless we
have an agreement to follow certain procedures, including a daily dollar limit
on trading.
28
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your broker or Prudential
professional or call us at (800) 225-1852. Read the prospectus carefully before
you invest or send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
Nicholas-Applegate Growth Equity Fund
Asset Allocation/Balanced Funds
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Active Balanced Fund
GLOBAL FUNDS
Global Stock Funds
PRUDENTIAL DEVELOPING MARKETS FUND
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
29
<PAGE>
Prudential Europe Index Fund
Prudential Pacific Index Fund
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
Global Series
International Stock Series
GLOBAL UTILITY FUND, INC.
Global Bond Funds
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Limited Maturity Portfolio
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
BOND FUNDS
Taxable Bond Funds
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Short-Intermediate Term Series
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Bond Market Index Fund
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Income Portfolio
Tax-Exempt Bond Funds
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Series
California Income Series
PRUDENTIAL MUNICIPAL BOND FUND
High Income Series
Insured Series
PRUDENTIAL MUNICIPAL SERIES FUND
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
30
<PAGE>
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
31
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest in the
Fund and keep it for future reference. For information
or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- ---------------------------------------------
Brokers should contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 225-1852
- ----------------------------------------------
Visit Prudential's web site at http://www.prudential.com
- ----------------------------------------------
Additional information about the Fund can be obtained
without charge and can be found in the following
documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and
investment strategies that significantly affected the
Fund's performance)
32
<PAGE>
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the
Securities and Exchange Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room
in Washington, DC
(For hours of operation, call 1(800) SEC-0330.)
Via the Internet:
http://www.sec.gov
- ----------------------------------------------
CUSIP Numbers:
Class A:
Class B:
Class C:
Class Z:
Investment Company Act File No: 811-
MF A
33
<PAGE>
PRUDENTIAL TAX-MANAGED EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1999
Prudential Tax-Managed Equity Fund (the Fund) is a diversified, open-end,
management investment company. The investment objective of the Fund is long-term
after-tax growth of capital. It seeks to achieve this objective by investing
primarily in equity-related securities of U.S. companies. About half the Fund's
portfolio will be managed in a "growth" style and the rest in a "value" style.
The Fund seeks to maximize long-term capital appreciation and to reduce taxable
distributions to its shareholders. There can be no assurance that the Fund's
investment objective will be achieved. See "Description of the Fund, Its
Investments and Risks."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Fund dated , 1999, a
copy of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Fund History...................................................................................................... B-2
Description of the Fund, Its Investments and Risks................................................................ B-2
Investment Restrictions........................................................................................... B-17
Management of the Fund............................................................................................ B-18
Control Persons and Principal Holders of Securities............................................................... B-21
Investment Advisory and Other Services............................................................................ B-21
Brokerage Allocation and Other Practices.......................................................................... B-24
Capital Shares, Other Securities and Organization................................................................. B-25
Purchase, Redemption and Pricing of Fund Shares................................................................... B-26
Shareholder Investment Account.................................................................................... B-35
Net Asset Value................................................................................................... B-39
Taxes, Dividends and Distributions................................................................................ B-40
Performance Information........................................................................................... B-42
Statement of Assets and Liabilities............................................................................... B-45
Report of Independent Accountants................................................................................. B-47
Appendix I--General Investment Information........................................................................ I-1
Appendix II--Historical Performance Data.......................................................................... II-1
Appendix III--Information Relating to Prudential.................................................................. III-1
</TABLE>
- --------------------------------------------------------------------------------
MF
<PAGE>
FUND HISTORY
The Fund was organized as a Delaware business trust on September 21, 1998.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(a) CLASSIFICATION. The Fund is a diversified, open-end, management investment
company.
(b) AND (c) INVESTMENT STRATEGIES, POLICIES AND RISKS. The investment objective
of the Fund is long-term after-tax growth of capital. While the principal
investment policies and strategies for seeking to achieve this objective are
described in the Fund's Prospectus, the Fund may from time to time also use the
securities, instruments, policies and strategies described below in seeking to
achieve its objective. The Fund may not be successful in achieving its objective
and you could lose money.
EQUITY-RELATED SECURITIES
Under normal market conditions, the Fund intends to invest primarily in
equity-related securities of U.S. companies. Equity-related securities include
common stocks as well as preferred stocks, securities convertible into or
exchangeable for common or preferred stocks, equity investments in partnerships,
joint ventures and other forms of non-corporate investment, American Depositary
Receipts (ADRs), American Depositary Shares (ADSs) and warrants and rights
exercisable for equity securities. Purchased options are not considered equity
securities for these purposes. ADRs and ADSs are U.S. dollar-denominated
certificates or shares issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank and traded on a United
States exchange or in the over-the-counter market. A convertible security is
typically a bond, debenture, corporate note or preferred stock or other similar
security that may be converted at a stated price within a specified period of
time into a specified number of shares of common stock or other equity
securities of the same or a different issuer. A warrant or right entitles the
holder to purchase equity securities at a specific price for a specific period
of time.
AMERICAN DEPOSITARY RECEIPTS AND AMERICAN DEPOSITARY SHARES. Generally, ADRs
and ADSs are in registered form. There are no fees imposed on the purchase or
sale of ADRs and ADSs when purchased from the issuing bank or trust company in
the initial underwriting, although the issuing bank or trust company may impose
charges for the collection of dividends and the conversion of ADRs and ADSs into
the underlying securities. Investment in ADRs and ADSs has certain advantages
over direct investment in the underlying foreign securities since: (1) ADRs and
ADSs are U.S. dollar-denominated investments that are registered domestically,
easily transferable, and for which market quotations are readily available, and
(2) issuers whose securities are represented by ADRs and ADSs are usually
subject to auditing, accounting, and financial reporting standards comparable to
those of domestic issuers.
WARRANTS AND RIGHTS. A warrant gives the holder thereof the right to
subscribe by a specified date to a stated number of shares of stock of the
issuer at a fixed price. Warrants tend to be more volatile than the underlying
stock, and if, at a warrant's expiration date the stock is trading at a price
below the price set in the warrant, the warrant will expire worthless.
Conversely, if at the expiration date, the underlying stock is trading at a
price higher than the price set in the warrant, the Fund can acquire the stock
at a price below its market value. Rights are similar to warrants but normally
have a shorter duration and are distributed directly by the issuer to
shareholders. Rights and warrants have no voting rights, receive no dividends
and have no rights with respect to the corporation issuing them.
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. The Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government. These obligations,
including those which are guaranteed by Federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Small Business Administration are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Fund must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations such as those issued by the Federal Home Loan Bank, the
Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the
B-2
<PAGE>
Tennessee Valley Authority, each of which has the right to borrow from the U.S.
Treasury to meet its obligations, and obligations of the Farm Credit System, the
obligations of which may be satisfied only by the individual credit of the
issuing agency. FHLMC investments may include collateralized mortgage
obligations.
Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by the Fund in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain U.S. Treasury notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are commonly
referred to as Treasury strips.
The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. Government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.
REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in securities of real estate investment trusts or REITs.
Unlike corporations, REITs do not have to pay income taxes if they meet certain
requirements of the Internal Revenue Code of 1986, as amended (Internal Revenue
Code). To qualify, a REIT must distribute at least 95% of its taxable income to
its shareholders and receive at least 75% of that income from rents, mortgages
and sales of property. REITs offer investors greater liquidity and
diversification than direct ownership of a handful of properties, as well as
greater income potential than an investment in common stock. Like any investment
in real estate, though, a REIT's performance depends on several factors, such as
its ability to find tenants for its properties, to renew leases and to finance
property purchases and renovations.
FOREIGN SECURITIES
The Fund may invest up to 35% of its total assets in foreign securities.
If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of income
the Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. The Fund may, but need
not, enter into forward foreign currency exchange contracts, options on foreign
currencies and futures contracts on foreign currencies and related options, for
hedging purposes, including: locking-in the U.S. dollar price of the purchase or
sale of securities denominated in a foreign currency; locking-in the U.S. dollar
equivalent of dividends to be paid on such securities which are held by the
Fund; and protecting the U.S. dollar value of such securities which are held by
the Fund.
Under the Internal Revenue Code of 1986, as amended (the Internal Revenue
Code), changes in an exchange rate which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities will result in foreign currency gains or
losses that increase or decrease an investment company's taxable income. The
exchange rates between the U.S. dollar and other currencies can be volatile and
are determined by such factors as supply and demand in the currency exchange
markets, international balances of payments, government intervention,
speculation and other economic and political conditions.
Foreign securities include securities of any foreign country an investment
adviser considers appropriate for investment by the Fund. Foreign securities may
also include securities of foreign issuers that are traded in U.S. dollars in
the United States although the underlying security is usually denominated in a
foreign currency.
The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Foreign investment income may be
subject to foreign withholding or other government taxes that could reduce the
return to the Fund on those securities. Tax treaties between the United States
and certain foreign countries may, however, reduce or eliminate the amount of
foreign tax to which the Fund would be subject.
B-3
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES.
Investing in securities of foreign issuers and countries involves certain
considerations and risks, which are not typically associated with investing in
securities of domestic companies. Foreign issuers are not generally subject to
uniform accounting, auditing and financial standards or other requirements
comparable to those applicable to U.S. companies. There may also be less
government supervision and regulation of foreign securities exchanges, brokers
and public companies than exist in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes
which may decrease the net return on such investments as compared to dividends
and interest paid to the Fund by domestic companies. There may be the
possibility of expropriations, confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect assets of the
Fund held in foreign countries. In addition, a portfolio containing foreign
securities may be adversely affected by fluctuations in the relative rates of
exchange between the currencies of different nations and by exchange control
regulations.
There may be less publicly available information about foreign issuers and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than, for example, the
New York Stock Exchange. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable U.S. companies. Brokerage
commissions and other transaction costs of foreign securities exchanges are
generally higher than in the United States.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Fund may also engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments, as a tax-management
strategy, for cash management purposes and to attempt to enhance return. The
Fund, and thus its investors, may lose money through any unsuccessful use of
these strategies. These strategies currently include the use of options on
equity securities and stock indices, futures contracts and options thereon,
forward currency exchange contracts and currency futures. 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. 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.
Transactions in derivative instruments may be used as a substitute for the
purchase and sale of securities. Derivative transactions may be more
advantageous in a given circumstance than transactions involving securities due
to more favorable current tax treatment, lower transaction costs or greater
liquidity.
OPTIONS TRANSACTIONS
The Fund may purchase and write (that is, sell) put and call options on
equity securities and financial indices that are traded on U.S. or foreign
securities exchanges or in the over-the-counter market to enhance return or to
hedge the Fund's portfolio. The Fund may write covered put and call options to
generate additional income through the receipt of premiums, purchase put options
in an effort to protect the value of a security that it owns against a decline
in market value and purchase call options in an effort to protect against an
increase in the price of securities it intends to purchase. The Fund may also
purchase put and call options to offset previously written put and call options
of the same series, including combining the purchase of a put option with the
sale of a call option (an equity collar).
A call option gives the purchaser, in exchange for a premium paid, the
right, for a specified period of time, to purchase the position subject to the
option at a specified price (the exercise price or strike price). The writer of
a call option, in return for the premium, has the obligation, upon exercise of
the option, to deliver a specified amount of cash to the purchaser upon receipt
of the exercise price. When the Fund writes a call option, the Fund gives up the
potential for gain on the underlying position in excess of the exercise price of
the option during the period that the option is open.
A put option gives the purchaser, in return for a premium, the right, for a
specified period of time, to sell the position subject to the option to the
writer of the put at the specified exercise price. The writer of the put option,
in return for the premium, has the obligation, upon exercise of the option, to
acquire the position at the exercise price. The Fund might, therefore, be
obligated to purchase the underlying position for more than its current market
price. The Fund may purchase put options on securities it holds that have
developed large capital gains, to protect against price declines. This
alternative to selling the securities may reduce exposure to price declines
without realizing substantial capital gains.
The Fund will write only "covered" options. An option is covered if, as long
as the Fund is obligated under the option, it (1) owns an offsetting position in
the underlying securities that comprise the index or (2) segregates cash or
other liquid assets in an amount equal to or greater than its obligation under
the option. Under the first circumstance, the Fund's losses are limited because
it owns the underlying position; under the second circumstance, in the case of a
written call option, the Fund's losses are potentially unlimited.
OPTIONS ON SECURITIES INDICES. The Fund may also purchase and sell put and
call options on securities indices traded on U.S. or foreign securities
exchanges or traded in the over-the-counter markets. Options on securities
indices are similar to options on
B-4
<PAGE>
securities except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to such difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the multiplier). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike for equity securities options, all settlements are in cash, and gain or
loss depends on price movements in the securities market generally (or in a
particular industry or segment of the market) rather than price movements in
individual securities.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers. Because exercises of index options are settled in cash, a
call writer cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of securities prices in the market generally or in
an industry or market segment rather than movements in the price of a particular
security. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the securities market generally or of a particular industry.
This requires different skills and techniques than predicting changes in the
price of individual stocks. The investment adviser currently uses such
techniques in conjunction with the management of other mutual funds.
RISKS OF TRANSACTIONS IN OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (6) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. The Fund intends to purchase and sell only those options which are
cleared by clearinghouses whose facilities are considered to be adequate to
handle the volume of options transactions.
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options.
B-5
<PAGE>
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities in
the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES
Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, the Fund will write call options on indices only
under the circumstances described below under "Limitations on the Purchase and
Sale of Options on Stock Indices and Futures Contracts and Options on Futures
Contracts."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such investments might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is "covered" by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may decline between the close of trading on the
date the exercise notice is filed with the clearing corporation and the close of
trading on the date the Fund exercises the call it holds or the time the Fund
sells the call which, in either case, would occur no earlier than the day
following the day the exercise notice was filed.
If the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising an
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
FUTURES CONTRACTS AND OPTIONS THEREON
The Fund may purchase and sell stock index and interest rate futures
contracts and options thereon which are traded on a commodities exchange or
board of trade to reduce certain risks of its investments and to attempt to
enhance return in accordance with regulations of the Commodity Futures Trading
Commission (CFTC). The Fund, and thus its investors, may lose money if the Fund
is unsuccessful in its use of these strategies. These futures contracts and
related options will be on stock indices and foreign currencies. A futures
contract is an agreement to purchase or sell an agreed amount of securities or
currencies at a set price for delivery in the future.
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STOCK INDEX AND INTEREST RATE FUTURES. The Fund may use stock index and
interest rate futures 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 CFTC. The Fund primarily intends to use stock
index and interest rate futures to facilitate new investments or funding
redemptions. The Fund may sell stock index futures contracts (rather than
securities) in an effort to protect against price declines in securities
holdings that have developed large accumulated capital gains.
A stock index futures contract is an agreement in which the writer (or
seller) of the contract agrees to deliver to the buyer an amount of cash equal
to a specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made. When the futures contract is entered into, each party
deposits with a broker or in a segregated custodial account approximately 5% of
the contract amount, called the "initial margin." Subsequent payments to and
from the broker, called "variation margin," will be made on a daily basis as the
price of the underlying stock index fluctuates, making the long and short
positions in the futures contracts more or less valuable, a process known as
"marked to market."
OPTIONS ON STOCK INDEX AND INTEREST RATE FUTURES. The Fund may also purchase
and write options on stock index and interest rate futures for certain hedging,
return enhancement and risk management purposes. In the case of options on stock
index futures, the holder of the option pays a premium and receives the right,
upon exercise of the option at a specified price during the option period, to
assume a position in a stock index futures contract (a long position if the
option is a call and a short position if the option is a put). If the option is
exercised by the holder before the last trading day during the option period,
the option writer delivers the futures position, as well as any balance in the
writer's futures margin account, which represents the amount by which the market
price of the stock index futures contract at exercise exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option on
the stock index future. If it is exercised on the last trading day, the option
writer delivers to the option holder cash in an amount equal to the difference
between the option exercise price and the closing level of the relevant index on
the date the option expires.
FUTURES CONTRACTS ON FOREIGN CURRENCIES. The Fund may buy and sell futures
contracts on foreign currencies such as the euro, and purchase and write options
thereon for hedging and risk management purposes. The euro is the single
currency of the members of the European Economic and Monetary Union that will be
used as currency beginning January 1, 1999. The Fund will engage in transactions
in only those futures contracts and options thereon that are traded on a
commodities exchange or a board of trade. A "sale" of a futures contract on
foreign currency means the assumption of a contractual obligation to deliver the
specified amount of foreign currency at a specified price in a specified future
month. A "purchase" of a futures contract means the assumption of a contractual
obligation to acquire the currency called for by the contract at a specified
price in a specified future month. At the time a futures contract is purchased
or sold, the Fund must allocate cash or securities as initial margin.
Thereafter, the futures contract is valued daily and the payment of "variation
margin" may be required, resulting in the Fund's paying or receiving cash that
reflects any decline or increase, respectively, in the contract's value, I.E.,
"marked-to-market."
LIMITATIONS ON PURCHASES AND SALES OF FUTURES CONTRACTS AND OPTIONS
THEREON. Under the regulations of the Commodity Exchange Act, an investment
company registered under the Investment Company Act is 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 market value of the Fund's total assets.
Futures contracts and related options are generally subject to the coverage
requirements of the CFTC and the segregation requirements of the Securities and
Exchange Commission (Commission). If the Fund does not hold the security or
currency underlying the futures contract, the Fund will be required to segregate
on an ongoing basis cash or other liquid assets in an amount at least equal to
the Fund's obligations with respect to such futures contracts. The Fund may
place and maintain cash, securities and similar investments with a futures
commission merchant in amounts necessary to effect the Fund's transactions in
exchange-traded futures contracts and options thereon, provided certain
conditions are satisfied.
The Fund's successful use of futures contracts and related options depends
upon the investment adviser's ability to predict the direction of the market and
is subject to various additional risks. The correlation between movements in the
price of a futures contract and the movements in the index or price of the
currencies underlying the futures contract is imperfect and there is a risk that
the value of the indices or currencies underlying the futures contract may
increase or decrease at a greater rate than the related futures contracts,
resulting in losses to the Fund. The use of these instruments will hedge only
the currency risks associated with investments in foreign securities, not market
risks. Certain futures exchanges or boards of trade have established daily
limits on the amount that the price of futures contracts or related options may
vary, either up or down, from the previous day's settlement price. These daily
limits may restrict the Fund's ability to purchase or sell certain futures
contracts or related options on any particular day. In addition, if the Fund
purchases futures to hedge against market advances before it can invest in
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common stock in an advantageous manner and the market declines, the Fund might
experience a loss on the futures contract. In addition, the ability of the Fund
to close out a futures position or an option depends on a liquid secondary
market. There is no assurance that at any particular time liquid secondary
markets will exist for any particular futures contract or option thereon.
FUTURES CONTRACTS. As a purchaser of a futures contract, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the futures contract at a specified time in the future for a specified price. As
a seller of a futures contract, the Fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price. The Fund may purchase futures contracts on stock indices
and foreign currencies. The Fund may purchase futures contracts on debt
securities, including U.S. Government securities, aggregates of debt securities,
stock indices and foreign currencies.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures contracts are settled on a net cash payment basis rather than by the
sale and delivery of the securities or currency underlying the futures contract.
U.S. futures contracts have been designed by exchanges that have been designated
as "contract markets" by the CFTC and must be executed through a futures
commission merchant (I.E., a brokerage firm) which is a member of the relevant
contract market. Futures contracts trade on these contract markets and the
exchange's affiliated clearing organization guarantees payment of margin as
between the clearing members of the exchange.
At the time a futures contract is purchased or sold, the Fund must allocate
cash or other liquid assets as a deposit payment (initial margin). It is
expected that the initial margin on U.S. exchanges will vary from one-half of 1%
to 4% of the total value of the contract. Under certain circumstances, however,
such as during periods of high volatility, the Fund may be required by an
exchange to increase the level of its initial margin payment. Thereafter, the
futures contract is valued daily and the payment in cash of "variation margin"
may be required, a process known as "mark-to-market." Each day the Fund is
required to provide or is entitled to receive variation margin in an amount
equal to any change in the value of the contract since the preceding day.
Initial margin requirements are established by the exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on a futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked-to-market daily and the
Fund may be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or other liquid assets,
called "variation margin," in the name of the broker, which are reflective of
price fluctuations in the futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of security and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss. Similarly,
a futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security (or currency) and
the same delivery date. If the offsetting sale price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that the Fund will be able to enter into a closing transaction.
The ordinary spreads between values in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions. In
addition, futures contracts entail risks. First, all participants in the futures
market are subject to initial and variation margin requirements. Rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing price distortions. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Increased participation by speculators in
the futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by the
investment adviser may still not result in a successful transaction.
OPTIONS ON FUTURES CONTRACTS
The Fund will also enter into options on futures contracts for certain BONA
FIDE hedging, return enhancement and risk management purposes. The Fund may
purchase put and call options and write (I.E., sell) "covered" put and call
options on futures
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contracts that are traded on U.S. and foreign exchanges. An option on a futures
contract gives the purchaser the right, but not the obligation, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). 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 various foreign currencies, including the
Australian Dollar, Canadian Dollar, Japanese Yen and Swiss Franc. With respect
to stock indices, options are traded on futures contracts for various U.S. and
foreign stock indices including the S&P 500 Stock Index and the NYSE Composite
Index.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
The Fund may write (that is, sell) put and call options on futures contracts
only if they are covered. The Fund will be considered "covered" with respect to
a call option it writes on a futures contract if the Fund owns the securities or
currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the
strike price of the "covered" option and having an expiration date not earlier
than the expiration date of the "covered" option, or if it segregates and
maintains with its Custodian for the term of the option cash or other liquid
assets, equal to the fluctuating value of the optioned futures. The Fund will be
considered "covered" with respect to a put option it writes on a futures
contract if it owns an option to sell that futures contract having a strike
price equal to or greater than the strike price of the "covered" option and
having an expiration date not earlier than the expiration date of the "covered"
option, or if it segregates with its Custodian for the term of the option cash
or other liquid assets at all times equal in value to the exercise price of the
put (less any initial margin deposited by the Fund with its Custodian with
respect to such put option). There is no limitation on the amount of the Fund's
assets which can be segregated.
Writing a put option on a futures contract serves as a partial hedge against
an increase in the value of securities the Fund intends to acquire. If the
futures price at expiration of the option is above the exercise price, the Fund
will retain the full amount of the option premium which provides a partial hedge
against any increase that may have occurred in the price of the securities the
Fund intends to acquire. If the market price of the underlying futures contract
is below the exercise price when the option is exercised, the Fund will incur a
loss, which may be wholly or partially offset by the decrease in the value of
the securities the Fund intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holdings of securities. If the futures price when the
option is exercised is above the exercise price, however, the Fund will incur a
loss, which may be wholly or partially offset by the increase in the value of
the securities in the Fund's portfolio which were being hedged.
The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the securities it owns
as a result of market activity or fluctuating currency exchange rates. The Fund
will also purchase call options on futures contracts as a hedge against an
increase in the value of securities the Fund intends to acquire as a result of
market activity or fluctuating currency exchange rates.
FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS THEREON
Generally, foreign currency futures contracts and options thereon are
similar to the futures contracts and options thereon discussed previously. By
entering into currency futures and options thereon on U.S. and foreign
exchanges, the Fund will seek to establish the rate at which it will be entitled
to exchange U.S. dollars for another currency at a future time. By selling
currency futures, the Fund will seek to establish the number of dollars it will
receive at delivery for a certain amount of a foreign currency. In this way,
whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required to pay for a specified amount of a foreign
currency in a future month. Thus if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt
to "lock in" the price in U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the investment adviser, in
purchasing an
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option, has been correct in its judgment concerning the direction in which the
market or the price of a foreign currency would move as against the U.S. dollar,
the Fund may exercise the option and thereby take a futures position to hedge
against the risk it had correctly anticipated or close out the option position
at a gain that will offset, to some extent, market or currency exchange losses
otherwise suffered by the Fund. If exchange rates move in a way the investment
adviser did not anticipate, however, the Fund will have incurred the expense of
the option without obtaining the expected benefit; any such movement in exchange
rates may also thereby reduce rather than enhance the Fund's profits on its
underlying securities transactions.
The Fund may also use European-style options. This means that the option is
only exercisable immediately prior to its expiration. This is in contrast to
American-style options, which are exercisable at any time prior to the
expiration date of the option.
ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Options, futures contracts, and options thereon on securities and currencies
may be traded on foreign exchanges. Such transactions may not be regulated as
effectively as similar transactions in the U.S., may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities. The value of
such positions also could be adversely affected by (1) other complex foreign
political, legal and economic factors, (2) lesser availability than in the U.S.
of data on which to make trading decisions, (3) delays in the Fund's ability to
act upon economic events occurring in the foreign markets during non-business
hours in the U.S., (4) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the U.S. and (5) lesser trading
volume.
Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES AND OPTIONS THEREON
There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. In the case of futures contracts on securities indices, the correlation
between the price of the futures contract and the movements in the index may not
be perfect. Therefore, a correct forecast of currency rates, market trends or
international political trends by the investment adviser may still not result in
a successful hedging transaction.
The Fund's ability to establish and close out positions in futures contracts
and options on futures contracts will be subject to the development and
maintenance of liquid markets. Although the Fund generally will purchase or sell
only those futures contracts and options thereon for which there appears to be a
liquid market, there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at any particular
time. In the event no liquid market exists for a particular futures contract or
option thereon in which the Fund maintains a position, it will not be possible
to effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.
Successful use of futures contracts and options thereon by the Fund is
subject to the ability of an investment adviser to predict correctly movements
in the direction of interest and foreign currency rates and the market
generally. If the investment adviser's expectations are not met, the Fund would
be in a worse position than if a hedging strategy had not been pursued. For
example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Fund will lose
part or all of the benefit of the increased value of its securities because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash to meet daily variation margin
requirements, it may have to sell securities to meet the requirements. These
sales may, but will not necessarily, be at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it is
disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
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 its
investors, may lose money through any unsuccessful use of these strategies. If
the investment adviser's predictions of movements in the direction of the
securities, foreign currency or interest rate markets are inaccurate, the
adverse consequences to the Fund may
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leave the Fund in a worse position than if such strategies were not used. Risks
inherent in the use of options, foreign currency and futures contracts and
options on futures contracts include (1) dependence on the investment adviser's
ability to predict correctly movements in the direction of securities prices,
interest rates and currency markets; (2) imperfect correlation between the price
of options and futures contracts and options thereon and movements in the prices
of the securities or currencies being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the risk that the counterparty may be
unable to complete the transaction and (6) the possible inability of the Fund to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate liquid assets in connection with hedging transactions.
LIMITATIONS ON THE PURCHASE AND SALE OF OPTIONS ON STOCK INDICES AND FUTURES
CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund will engage in transactions in futures contracts and options
thereon only for BONA FIDE hedging, return enhancement and risk management
purposes, in each case in accordance with the rules and regulations of the CFTC,
and not for speculation.
The Fund will write put options on stock indices and futures contracts on
foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or other liquid assets equal to the aggregate
exercise price of the puts. In accordance with CFTC regulations, the Fund may
not purchase or sell futures contracts or options thereon if the initial margin
and premiums for options on futures would exceed 5% of the market value of the
Fund's total assets after taking into account unrealized profits and unrealized
losses on such contracts; provided, however, that in the case of an option that
is in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The above restriction does not apply
to the purchase and sale of futures contracts and options thereon for BONA FIDE
hedging purposes within the meaning of the CFTC regulations. In instances
involving the purchase of futures contracts or call options thereon or the
writing of put options thereon by the Fund, an amount of cash and other liquid
assets equal to the market value of the futures contracts and options thereon
(less any related margin deposits), will be segregated with the Fund's Custodian
to cover the position, or alternative cover will be employed, thereby insuring
that the use of such instruments is unleveraged. The Fund does not intend to
purchase options on securities indices if the aggregate premiums paid for such
outstanding options would exceed 10% of the Fund's total assets.
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate with its Custodian, or pledge to a broker as collateral for the
option, cash or other liquid assets substantially replicating the movement of
the index, in the judgment of the Fund's investment adviser, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts.
If the Fund has written an option on an industry or market segment index, it
will segregate with its Custodian, or pledge to a broker as collateral for the
option, at least ten "qualified securities," all of which are stocks of issuers
in such industry or market segment, with a market value at the time the option
is written of not less than 100% of the current index value times the multiplier
times the number of contracts. Such stocks will include stocks which represent
at least 50% of the weighting of the industry or market segment index and will
represent at least 50% of the Fund's holdings in that industry or market
segment. No individual security will represent more than 15% of the amount so
segregated or pledged in the case of broadly-based stock market index options or
25% of such amount in the case of industry or market segment index options. If
at the close of business on any day the market value of such qualified
securities so segregated or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, the Fund will so segregate
or pledge an amount in cash or other liquid assets equal in value to the
difference. In addition, when the Fund writes a call on an index which is
in-the-money at the time the call is written, the Fund will segregate with its
Custodian or pledge to the broker as collateral cash or other liquid assets
equal in value to the amount by which the call is in-the-money times the
multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a national securities exchange or listed on NASDAQ against
which the Fund has not written a stock call option and which has not been hedged
by the Fund by the sale of stock index futures. However, if the Fund holds a
call on the same index as the call written where the exercise price of the call
held is equal to or less than the exercise price of the call written or greater
than the exercise price of the call written if the difference is segregated by
the Fund in cash or other liquid assets with its Custodian, it will not be
subject to the requirements described in this paragraph.
The Fund may engage in futures contracts and options on futures transactions
as a hedge against changes, resulting from market or political conditions, in
the value of the currencies to which the Fund is subject or to which the Fund
expects to be subject in connection with future purchases. The Fund may engage
in such transactions when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund. The Fund may write options
on futures contracts to realize through the receipt of premium income a greater
return than would be realized in the Fund's portfolio securities alone.
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The Fund's purchase and sale of futures contracts and purchase and writing
of options on futures contracts will be for the purpose of protecting its
portfolio against anticipated future changes in foreign currency exchange rates
which might otherwise either adversely affect the value of the Fund's portfolio
securities or adversely affect the prices of securities that the Fund intends to
purchase at a later date, and to enhance the Fund's return. As an alternative to
BONA FIDE hedging as defined by the CFTC, the Fund may comply with a different
standard established by CFTC rules with respect to futures contracts and options
thereon purchased by the Fund incidental to the Fund's activities in the
securities markets, under which the value of the assets underlying such
positions will not exceed the sum of (1) cash or other liquid assets segregated
for this purpose, (2) cash proceeds on existing investments due within thirty
days and (3) accrued profits on the particular futures contract or option
thereon.
In addition, CFTC regulations may impose limitations on the Fund's ability
to engage in certain return enhancement and risk management strategies. There
are no limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.
Although the Fund intends to purchase or sell futures and options on futures
only on exchanges where there appears to be an active market, there is no
guarantee that an active market will exist for any particular contract or at any
particular time. If there is not a liquid market at a particular time, it may
not be possible to close a futures position at such time, and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, if a futures contract has been used
to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of securities, if any, may partially or completely offset losses on the
futures contracts. However, there is no guarantee that the price movements of
the securities will, in fact, correlate with the price movements in the futures
contracts and thus provide an offset to losses on a futures contract.
POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
The Fund may enter into foreign currency forward exchange contracts to
protect the value of its assets against future changes in the level of currency
exchange rates. The Fund also may purchase and sell foreign currency forward
contracts, futures contracts on foreign currency, and options on futures
contracts on foreign currency to protect against the effect of adverse changes
in foreign currencies. 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. The Fund may not
use forward contracts, options on foreign currencies, futures contracts on
foreign currencies and options on such contracts in order to generate income,
although the use of such contracts may incidentally generate income. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of foreign currency) of the
securities being hedged.
RISKS RELATED TO FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
The Fund may enter into foreign currency forward exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying
B-12
<PAGE>
transactions, the Fund may be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. If the Fund enters into a
hedging transaction as described above, the transaction will be "covered" by the
position being hedged, or the Fund's Custodian will place cash or other liquid
assets into a segregated account of the Fund in an amount equal to the value of
the Fund's total assets committed to the consummation of forward foreign
currency exchange contracts (less the value of the covering positions, if any).
If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value of
the account will, at all times, equal the amount of the Fund's net commitments
with respect to such contracts.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of the
foreign currency and if the market value of the security is less than the amount
of foreign currency that the Fund is obligated to deliver, then it would be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase).
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward contract prices increase,
the Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in foreign currency forward exchange contracts will
generally be limited to the transactions described above. Of course, the Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities. It also should be recognized that this method
of protecting the value of the Fund's portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities which are unrelated to exchange rates. Additionally, although
such contracts tend to minimize the risk of loss due to decline in the value of
the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
FOREIGN CURRENCY STRATEGIES--SPECIAL CONSIDERATIONS
The Fund may use options on foreign currencies, futures on foreign
currencies, options on futures contracts on foreign currencies and forward
currency contracts, to hedge against movements in the values of the foreign
currencies in which the Fund's securities are denominated. Such currency hedges
can protect against price movements in a security that the Fund owns or intends
to acquire that are attributable to changes in the value of the currency in
which it is denominated. Such hedges do not, however, protect against price
movements in the securities that are attributable to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or
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<PAGE>
basket of currencies, the values of which the Fund's investment adviser believes
will have a positive correlation to the value of the currency being hedged. The
risk that movements in the price of the contract will not correlate perfectly
with movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.
Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, the Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually quite short, possibly
overnight or a few days, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
repurchase agreement. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of the
instruments declines, the Fund will require additional collateral. If the seller
defaults and the value of the collateral securing the repurchase agreement
declines, the Fund may incur a loss.
The Fund's repurchase agreements will be collateralized by cash or liquid
assets. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Trustees. The
investment adviser will monitor the creditworthiness of such parties, under the
general supervision of the Board of Trustees. In the event of a default or
bankruptcy by a seller, the Fund may liquidate the collateral. To the extent
that the proceeds from any sale of such collateral upon a default in the
obligation to repurchase are less than the repurchase price, the Fund will
suffer a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM) pursuant
to an order of the Securities and Exchange Commission (the Commission). On a
daily basis, any uninvested cash balances of the Fund may be aggregated with
those of such investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the joint
account based on the percentage of its investment.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities (sales of securities the Fund
does not own made in anticipation of a decline in market value) or maintain a
short position, provided that at all times when a short position is open, the
Fund owns an equal amount of such securities or securities convertible into or
exchangeable for such securities; provided that if further consideration is
required in connection with the conversion or exchange, cash or other liquid
assets in an amount equal to such consideration must be segregated, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box). Not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 33 1/3% of the value of
the Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral
(including a secured letter of credit) that is equal to at least the market
value, determined daily, of the loaned securities. The
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<PAGE>
advantage of such loans is that the Fund continues to receive payments in lieu
of the interest and dividends on the loaned securities, while at the same time
earning interest either directly from the borrower or on the collateral which
will be invested in short-term obligations.
A loan may be terminated by the Fund at any time. If the borrower fails to
maintain the requisite amount of collateral, the loan automatically terminates,
and the Fund could use the collateral to replace the securities while holding
the borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some cases
loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms determined to be creditworthy pursuant to procedures approved by the Board
of Trustees of the Fund. On termination of the loan, the borrower is required to
return the securities to the Fund, and any gain or loss in the market price
during the loan would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
WHEN-ISSUED AND 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 segregate cash or other liquid assets having a value equal
to or greater than the Fund's purchase commitments. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery of
the securities the value may be more or less than the purchase price and an
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.
BORROWING
The Fund may borrow an amount equal to no more than 33 1/3% of the value of
its total assets (calculated at the time of the borrowing) from banks for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. The Fund may pledge up to 33 1/3% of its total assets to secure
these borrowings. If the Fund's asset coverage for borrowings falls below 300%,
the Fund will take prompt action to reduce its borrowings. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell portfolio securities to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. The Fund will not
purchase portfolio securities when borrowings exceed 5% of the value of its
total assets.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in 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. Repurchase agreements subject to demand are
deemed to have a maturity equal to the applicable notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
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In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment advisers will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Trustees. In reaching liquidity decisions, the investment adviser will
consider, INTER ALIA, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and the nature of the marketplace trades (E.G., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). In addition, in order for commercial paper that is issued in reliance
on Section 4(2) of the Securities Act to be considered liquid, (i) it must be
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated, be of comparable quality in the
view of the investment adviser; and (ii) it must not be "traded flat" (I.E.,
without accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund is permitted to invest up to 10% of its total assets in securities
of other investment companies and may purchase affiliated investment company
shares as permitted by the Commission. The Fund does not intend to invest in
such securities during the coming year. If the Fund does invest in securities of
other investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees. See "Investment Restrictions."
SEGREGATED ASSETS
When the Fund is required to segregate assets in connection with certain
hedging transactions, it will mark cash or liquid assets as segregated with the
Fund's Custodian. "Liquid assets" mean cash, U.S. Government securities, equity
securities (including foreign securities), debt obligations or other liquid,
unencumbered assets, marked-to-market daily.
(d) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in money market instruments, including commercial paper of
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, non-convertible debt securities
(corporate and government), obligations issued or guaranteed by the U.S.
Government, its agencies or its instrumentalities, repurchase agreements and
cash (foreign currencies or United States dollars). 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.
(e) PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate is not expected to exceed 100%. The portfolio managers expect the
portfolio turnover rate to be generally less than 50%, except when volatile
markets, excessive shareholder redemptions or the need to realize losses to
offset gains dictates otherwise. The portfolio turnover rate is generally the
percentage computed by dividing the lesser of portfolio purchases or sales
(excluding all securities, including options, whose maturities or expiration
date at acquisition were one year or less) by the monthly average value of the
portfolio. High portfolio turnover (over 100%) involves correspondingly greater
brokerage commissions and other transaction costs, which are borne directly by
the Fund. In addition, high portfolio turnover may also mean that a
proportionately greater amount of distributions to shareholders will be taxed as
ordinary income rather than long-term capital gains compared to investment
companies with lower portfolio turnover. See "Brokerage Allocation and Other
Practices" and "Taxes, Dividends and Distributions."
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<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to the Fund, the lesser of (1) 67% of the shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (2) more than 50% of the
outstanding voting shares.
The Fund may not:
1. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks 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. The Fund may pledge up to 33 1/3%
of the value of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, forward foreign currency exchange contracts and collateral
arrangements relating thereto, and collateral arrangements with respect to
futures contracts and options thereon and with respect to the writing of options
and obligations of the Fund to Trustees pursuant to deferred compensation
arrangements are not deemed to be a pledge of assets subject to this
restriction.
2. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result, with respect to 75% of the Fund's
total assets, more than 5% of the Fund's total assets (determined at the time of
investment) would then be invested in securities of a single issuer.
3. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell securities which are secured by real estate, securities of
companies which invest or deal in real estate and publicly traded securities of
real estate investment trusts.
4. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon, and forward
foreign currency exchange contracts.
5. 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.
6. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 33 1/3 of the Fund's total assets.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
Although not fundamental, the Fund has the following additional investment
restrictions.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a security
on margin.
2. Make short sales of securities. Short sales "against-the-box" are not
subject to this limitation.
3. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result 25% or more of the Fund's total
assets (determined at the time of investment) would be invested in a single
industry.
4. Invest for the purpose of exercising control or management.
5. Purchase more than 10% of all outstanding voting securities of any one
issuer.
6. Invest in securities of other investment companies, except: (i) purchases
in the open market involving only customary brokerage commissions and as a
result of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5% of
its total assets in any one investment company and will not have invested more
than 10% of its total assets (determined at the time of investment) in such
securities of one or more investment companies, (ii) as part of a merger,
consolidation or other acquisition, or (iii) purchases of affiliated investment
company shares pursuant to and subject to such limits as the Commission may
impose by rule or order.
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MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Edward D. Beach (73) Trustee President and Director of BMC Fund, Inc., a closed-end
investment company; previously, Vice Chairman of Broyhill
Furniture Industries, Inc.; Certified Public Accountant;
Secretary and Treasurer of Broyhill Family Foundation,
Inc.; Member of the Board of Trustees of Mars Hill
College and Director or Trustee of funds within the
Prudential Mutual Funds.
Delayne Dedrick Gold (59) Trustee Marketing and Management Consultant and Director or
Trustee of funds within the Prudential Mutual Funds.
*Robert F. Gunia (51) Vice President and Trustee Vice President (since September 1997) of Prudential;
Executive Vice President and Treasurer (since December
1996) of Prudential Investments Fund Management LLC
(PIFM); Senior Vice President (since March 1987) of
Prudential Securities Incorporated (Prudential
Securities); formerly Chief Administrative Officer (July
1990-September 1996), Director (January 1989-September
1996) and Executive Vice President, Treasurer and Chief
Financial Officer (June 1987-September 1996) of
Prudential Mutual Fund Management, Inc.; Vice President
and Director (since May 1989) of The Asia Pacific Fund,
Inc. and Director or Trustee of funds within the
Prudential Mutual Funds.
Douglas H. McCorkindale (58) Trustee Vice Chairman (since March 1984) and President (since
September 1997) of Gannett Co. Inc. (publishing and
media); Director of Gannett Co. Inc., Frontier
Corporation and Continental Airlines, Inc. and Director
or Trustee of funds within the Prudential Mutual Funds.
*Mendel A. Melzer, CFA (38) Trustee Chief Investment Officer (since October 1996) of
751 Broad Street Prudential Investments Asset Management; formerly Chief
Newark, NJ 07102 Financial Officer (November 1995-September 1996) of
Prudential Investments, Senior Vice President and Chief
Financial Officer (April 1993-November 1995) of
Prudential Preferred Financial Services, Managing
Director (April 1991-April 1993) of Prudential Investment
Advisors and Senior Vice President (July 1989-April 1991)
of Prudential Capital Corporation; Chairman and Director
of Prudential Series Fund, Inc. and Director or Trustee
of funds within the Prudential Mutual Funds.
Thomas T. Mooney (56) Trustee President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; Trustee of
Center for Governmental Research, Inc.; Director of Blue
Cross of Rochester, Monroe County Water Authority,
Rochester Jobs, Inc., Executive Service Corps of
Rochester, Monroe County Industrial Development
Corporation, Northeast-Midwest Institute and The Business
Council of New York State; President, Director and
Treasurer of First Financial Fund, Inc. and The High
Yield Plus Fund, Inc. and Director or Trustee of funds
within the Prudential Mutual Funds.
</TABLE>
B-18
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Stephen P. Munn (55) Trustee Chairman (since January 1994), Director and President
(since 1988) and Chief Executive Officer (1988-December
1993) of Carlisle Companies Incorporated (manufacturer of
industrial products) and Director or Trustee of funds
within the Prudential Mutual Funds.
*Richard A. Redeker (54) Trustee Employee of Prudential Investments; formerly President,
751 Broad Street Chief Executive Officer and Director (October
Newark, NJ 07102 1993-September 1996) of Prudential Mutual Fund
Management, Inc., Executive Vice President, Director and
Member of the Operating Committee (October 1993-September
1996) of Prudential Securities, Director (October
1993-September 1996) of Prudential Securities Group,
Inc., Executive Vice President (January 1994-September
1996) of The Prudential Investment Corporation, Director
(January 1994-September 1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services,
Inc. and Senior Executive Vice President and Director
(September 1978-September 1993) of Kemper Financial
Services, Inc.; President and Director of The High Yield
Income Fund, Inc.
Robin B. Smith (58) Trustee Chairman and Chief Executive Officer (since August 1996),
formerly President and Chief Executive Officer (January
1988-August 1996) and President and Chief Operating
Officer (September 1981-December 1988) of Publishers
Clearing House; Director of BellSouth Corporation, Texaco
Inc., Springs Industries Inc. and Kmart Corporation and
Director or Trustee of funds within the Prudential
Mutual Funds.
*Brian M. Storms (44) President and Trustee President, Prudential Investments (since October 1998),
President, Prudential Mutual Funds, Annuities and
Investment Management Services (September 1996-October
1998); Managing Director, Fidelity Investment
Institutional Services Company, Inc. (July 1991-September
1996); President, J.K. Schofield (October 1989-September
1991); Senior Vice President, INVEST Financial
Corporation (September 1982-October 1989).
Louis A. Weil, III (57) Trustee President and Chief Executive Officer (since January 1996)
and Director (since September 1991) of Central
Newspapers, Inc.; Chairman of the Board (since January
1996), Publisher and Chief Executive Officer (August
1991-December 1995) of Phoenix Newspapers, Inc.; formerly
Publisher (May 1989-March 1991) of Time Magazine,
President, Publisher & Chief Executive Officer (February
1986-August 1989) of The Detroit News and member of the
Advisory Board, Chase Manhattan Bank-Westchester;
Director of The High Yield Income Fund, Inc. and Director
or Trustee of funds within the Prudential Mutual Funds.
Clay T. Whitehead (59) Trustee President (since May 1983) of National Exchange Inc. (new
business development firm) and Director or Trustee of
funds within the Prudential Mutual Funds.
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Grace C. Torres (39) Treasurer and Principal First Vice President (since December 1996) of PIFM; First
Financial and Accounting Vice President (since March 1993) of Prudential
Officer Securities; formerly First Vice President (March
1994-September 1996) of Prudential Mutual Fund
Management, Inc. and Vice President (July 1989-March
1994) of Bankers Trust Corporation.
Marguerite E. H. Morrison (42) Secretary Vice President and Associate General Counsel (since
December 1996) of PIFM; Vice President and Associate
General Counsel of Prudential Securities; formerly Vice
President and Associate General Counsel (June
1991-September 1996) of Prudential Mutual Fund
Management, Inc.
Stephen M. Ungerman (44) Assistant Treasurer Tax Director (since March 1996) of Prudential Investments;
formerly First Vice President (February 1993-September
1996) of Prudential Mutual Fund Management, Inc.
</TABLE>
- ------------------------
* "Interested" Trustee, as defined in the Investment Company Act, by reason of
affiliation with Prudential Securities, Prudential or PIFM.
** Unless otherwise indicated, the address of the Trustees and officers is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
Trustees and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Investment Management Services LLC.
The Fund has Trustees who, in addition to overseeing the actions of the
Fund's Manager, investment adviser and Distributor, decide upon matters of
general policy. The Trustees also review the actions of the Fund's officers, who
conduct and supervise the daily business operations of the Fund.
The Trustees have adopted a retirement policy which calls for the retirement
of Trustees on December 31 of the year in which they reach the age of 72, except
that retirement is being phased in for Trustees of Prudential Mutual Funds who
were age 68 or older as of December 31, 1993. Under this phase-in provision, Mr.
Beach is scheduled to retire on December 31, 1999.
Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Trustees of the Fund who are affiliated persons of the
Manager. The Fund pays each of its Trustees who is not an affiliated person of
PIFM or the investment adviser annual compensation of $ , in addition to
certain out-of-pocket expenses. The amount of annual compensation paid to each
Trustee may change as a result of the introduction of additional funds on the
boards of which the Trustee will be asked to serve.
Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Trustees' fees in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills
at the beginning of each calendar quarter or, pursuant to a Commission exemptive
order, at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Trustee. The Fund's obligation to make payments of deferred Trustees'
fees, together with interest thereon, is a general obligation of the Fund.
B-20
<PAGE>
The following table sets forth the estimated aggregate compensation
estimated to be paid by the Fund for the fiscal period ending October 31, 1999
to the Trustees who are not affiliated with the Manager and the aggregate
compensation paid to such Trustees for service on the Fund's Board and the
boards of all other investment companies managed by PIFM (Fund Complex) for the
calendar year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL 1997
COMPENSATION
AGGREGATE FROM FUND
COMPENSATION COMPLEX PAID
NAME OF TRUSTEE FROM FUND TO TRUSTEES
- ----------------------------------------------------------------------------------- ------------ ----------------------
<S> <C> <C>
Edward D. Beach.................................................................... $ $135,000(38/63)*
Delayne Dedrick Gold............................................................... 135,000(38/63)*
Robert F. Gunia+................................................................... None None
Douglas H. McCorkindale**.......................................................... 70,000(20/35)*
Mendel A. Melzer+.................................................................. None None
Thomas T. Mooney**................................................................. 115,000(31/64)*
Stephen P. Munn.................................................................... 45,000(15/21)*
Richard A. Redeker+................................................................ None None
Robin B. Smith**................................................................... 90,000(27/34)*
Brian M. Storms+................................................................... None None
Louis A. Weil, III................................................................. 90,000(26/50)*
Clay T. Whitehead.................................................................. 45,000(15/21)*
</TABLE>
- ------------------------
* Indicates number of funds/portfolios in Fund Complex to which aggregate
compensation relates.
** Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1997, includes amounts deferred at the
election of Trustees under the funds' deferred compensation plans. Including
accrued interest, total compensation amounted to $71,640, $143,909 and
$139,081 for Messrs. McCorkindale and Mooney and Ms. Smith, respectively.
+ Messrs. Gunia, Melzer, Redeker and Storms, who are interested Trustees, do
not receive compensation from the Fund or any fund in the Fund Complex.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Trustees of the Fund are eligible to purchase Class Z shares of the Fund,
which are sold without either an initial sales charge or contingent deferred
sales charge to a limited group of investors.
As of , 1998, the Trustees and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund. As of such date, PIFM
owned all of the Fund's outstanding shares and controlled the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
(a) MANAGER AND INVESTMENT ADVISER
The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Funds, comprise the Prudential Mutual Funds. See "How
the Fund Is Managed--Manager" in the Prospectus of the Fund. As of ,
1998, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately $ billion. According to the
Investment Company Institute, as of March 31, 1998, the Prudential Mutual Funds
were the 18th 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 (the Management
Agreement), PIFM, subject to the supervision of the Fund's Board of Trustees and
in conformity with the stated policies of the Fund, manages both the investment
operations of the
B-21
<PAGE>
Fund and the composition of the Fund's portfolio, including the purchase,
retention, disposition and loan of securities and other assets. In connection
therewith, PIFM is obligated to keep certain books and records of the Fund. PIFM
also administers the Fund's business affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian (the Custodian), and PMFS, the Fund's
transfer and dividend disbursing agent. The management services of PIFM for the
Fund are not exclusive under the terms of the Management Agreement and PIFM is
free to, and does, render management services to others.
For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate of .65 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly.
In connection with its management of the business affairs of the Fund, PIFM
bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and the Manager,
except the fees and expenses of Trustees who are not affiliated persons of PIFM
or the Fund's investment adviser;
(b) all expenses incurred by PIFM or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation,
doing business as Prudential Investments (PI, the investment adviser or the
Subadviser) pursuant to the subadvisory agreement between PIFM and PI (the
Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Trustees who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of share
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Commission,
including the preparation and printing of the Fund's registration statements and
prospectuses for such purposes, and paying the fees and expenses of notice
filings made in accordance with state securities laws, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreement provides that PIFM will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act.
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 the Fund. In connection therewith, PI is
obligated to keep certain books and records of the Fund. Under the Subadvisory
Agreement, PI, subject to the supervision of PIFM, is responsible for managing
the assets of the Fund in accordance with its investment objective, investment
program and policies. PI determines what securities and other instruments are
purchased and sold for the Fund and is responsible for obtaining and evaluating
financial data relevant to the Fund. PIFM continues to have responsibility for
all investment advisory services pursuant to the Management Agreement. Under the
Subadvisory Agreement, PI is reimbursed by PIFM for the reasonable costs and
expenses incurred by PI in furnishing those services.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or the Subadviser 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.
B-22
<PAGE>
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares, respectively. The
Distributor also incurs the expenses of distributing the Class Z shares under
the Distribution Agreement with the Fund, none of which are reimbursed by or
paid for by the Fund.
The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of, brokers or financial institutions
which have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of the Distributor associated with the sale of Fund
shares, including lease, utility, communications and sales promotion expenses.
The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
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.
CLASS A PLAN. 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 net assets of the Class A shares. The
Class A Plan provides that (1) .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and the maintenance of
shareholder accounts (service fee) and (2) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1%. The Distributor has
agreed to limit its distribution-related fees payable under the Class A Plan to
.25 of 1% of the average daily net assets of the Class A shares. This voluntary
waiver may be terminated at any time without notice.
CLASS B AND CLASS C PLANS. 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 that (1) up to .25 of 1% of the average daily net assets of the
Class B and Class C shares, respectively, may be paid as a service fee and (2)
up to .75 of 1% (not including the service fee) may be paid for
distribution-related expenses with respect to the Class B and Class C shares,
respectively (asset-based sales charge). The Distributor also receives
contingent deferred sales charges from certain redeeming shareholders.
Distribution expenses attributable to the sale of Class A, Class B and Class
C shares of the Fund are allocated to each such class based upon the ratio of
sales of each such class to the sales of Class A, Class B and Class B shares of
the Fund other than expenses allocable to a particular class. The distribution
fee and sales charge of one class will not be used to subsidize the sale of
another class.
The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Trustees, including a majority vote of the Trustees who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plans or in any agreement related to the Plans
(the Rule 12b-1 Trustees), at a meeting called for the purpose of voting on such
continuance. A Plan may be terminated at any time, without penalty, by the vote
of a majority of the Rule 12b-1 Trustees or by the vote of the holders of a
majority of the outstanding shares of the applicable class of the Fund on not
more than 60 days', nor less than 30 days', written notice to any other party to
the Plan. The Plans may not be amended to increase materially the amounts to be
spent for the services described therein without approval by the shareholders of
the applicable class, and all material amendments are required to be approved by
the Board of Trustees in the manner described above. Each Plan will
automatically terminate in the event of its assignment. The Fund will not be
obligated to pay expenses incurred under any Plan if it is terminated or not
continued.
Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of Rule
12b-1 Trustees shall be committed to the Rule 12b-1 Trustees.
B-23
<PAGE>
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws.
In addition to distribution and service fees paid by the Fund under the
Plans, the Manager (or one of its affiliates) may make payments to dealers
(including Prudential Securities) and other persons which distributes 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.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. In the case of
Class B shares, interest charges equal to the prime rate plus one percent per
annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge with respect to
Class B and Class C shares of the Fund may not exceed .75 of 1%. The 6.25%
limitation applies to the Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any class,
all sales charges on shares of that class would be suspended.
(c) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the 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.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the transfer and dividend disbursing agent of the Fund.
PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account of $9.00, a new account set-up fee of $2.00 for each
manually established account and a monthly inactive zero balance account fee of
$0.20 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.
, , New York, New York 10036, serves as the Fund's
independent accountants and in that capacity audits the Fund's annual financial
statements.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in this
section includes the Subadviser. Broker-dealers may receive negotiated brokerage
commissions on Fund portfolio transactions, including options and the purchase
and sale of underlying securities upon the exercise of options. On foreign
securities exchanges, commissions may be fixed. Orders may be directed to any
broker or futures commission merchant including, to the extent and in the manner
permitted by applicable law, Prudential Securities and its affiliates.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Fund will not deal with
Prudential Securities or any affiliate in any transaction in which Prudential
Securities or any affiliate acts as principal, except in accordance with rules
of the Commission. Thus, it will not deal in the over-the-counter market with
Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves Prudential
Securities' acting as principal with respect to any part of the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of price and
execution. The Manager seeks to effect each transaction at a price and
commission that provides the most favorable total cost or proceeds reasonably
attainable in the circumstances. The factors that the Manager may consider in
selecting a particular broker, dealer or futures commission merchant (firms) are
the Manager's knowledge of negotiated
B-24
<PAGE>
commission rates currently available and other current transaction costs; the
nature of the portfolio transaction; the size of the transaction; the desired
timing of the trade; the activity existing and expected in the market for the
particular transaction; confidentiality; the execution, clearance and settlement
capabilities of the firms; the availability of research and research related
services provided through such firms; the Manager's knowledge of the financial
stability of the firms; the Manager's knowledge of actual or apparent
operational problems of firms; and the amount of capital, if any, that would be
contributed by firms executing the transaction. Given these factors, the Fund
may pay transaction costs in excess of that which another firm might have
charged for effecting the same transaction.
When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research related products and/or services,
such as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultants. Such services are used in
connection with some or all of the Manager's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.
The Manager maintains an internal allocation procedure to identify those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to the Fund and its other clients. The
Manager makes a good faith determination that the research and/or service is
reasonable in light of the type of service provided and the price and execution
of the related portfolio transactions.
When the Manager deems the purchase or sale of equities to be in the best
interests of the Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to its clients. The allocation of orders among firms and the commission rates
paid are renewed periodically by the Fund's Trustees. Portfolio securities may
not be purchased from any underwriting or selling syndicate of which Prudential
Securities, or an affiliate during the existence of the syndicate, is a
principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.
Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a securities broker or futures commission merchant for the
Fund. In order for Prudential Securities (or any affiliate) to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other firms in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange during a comparable period of time. This
standard would allow Prudential Securities (or any affiliate) to receive no more
than the remuneration which would be expected to be received by an unaffiliated
firm in a commensurate arm's-length transaction. Furthermore, the Board of
Trustees of the Fund, including a majority of the Trustees who are not
"interested" persons, 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, as
amended, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation. Prudential Securities
must furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities from transactions
effected for the Fund during the applicable period. Brokerage and futures
transactions with Prudential Securities are also subject to such fiduciary
standards as may be imposed by applicable law.
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, $.001 par value per share, divided into four classes, designated Class
A, Class B, Class C and Class Z. Each class of shares of the Fund represents an
interest in the same assets of the Fund and is identical in all respects except
that (1) each class is subject to different sales charges and distribution
and/or service fees (except for Class Z shares, which are not subject to any
sales charges and distribution and/or service fees), which may affect
performance, (2) each class has exclusive voting rights on any matter submitted
to shareholders
B-25
<PAGE>
that relates solely to its arrangement and has separate voting rights on any
matter submitted to shareholders in which the interests of one class differ from
the interests of any other class, (3) each class has a different exchange
privilege, (4) only Class B shares have a conversion feature and (5) Class Z
shares are offered exclusively for sale to a limited group of investors. In
accordance with the Fund's Declaration of Trust, the Board of Trustees may
authorize the creation of additional series of shares and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the 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. 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 debts and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders and to Class Z shareholders, whose shares are not subject to any
distribution and/or service fees. The Fund's shares do not have cumulative
voting rights for the election of 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% or more
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.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) or (2) on a deferred basis (Class B or Class C shares). Class Z
shares of the Fund are offered to a limited group of investors at NAV without
any sales charges.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone PMFS 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 Tax-Managed Equity Fund, specifying on the wire
the account number assigned by PMFS and your name and identifying the class in
which you are eligible to invest (Class A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Tax-Managed
Equity Fund, Class A, Class B, Class C or Class Z shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders using Federal Funds. The minimum amount which may be invested by
wire is $1,000.
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or (3)
other acquisitions of portfolio securities that (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Fund's investment adviser.
B-26
<PAGE>
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 5%, Class C*
shares are sold with a 1% sales charge and Class B* and Class Z shares are sold
at NAV. Using the NAV of the Fund at ,1998, the maximum offering price
of the Fund's shares is as follows:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share............ $ 10.00
Maximum sales charge (5% of offering price)....................... .53
------
Maximum offering price............................................ $ 10.53
------
------
CLASS B
Net asset value, offering price and redemption price per Class B
share*........................................................... $ 10.00
------
------
CLASS C
Net asset value and redemption price per Class C share*........... $ 10.00
Sales charge (1% of offering price)............................... .10
------
Offering price to public.......................................... $ 10.10
------
------
CLASS Z
Net asset value, offering price and redemption price per Class Z
share............................................................ $ 10.00
------
------
</TABLE>
- ------------
* Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions.
SELECTING A PURCHASE ALTERNATIVE
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6 year period, you should
consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the initial sales charge plus the cumulative annual
distribution-related fee on Class A shares would exceed those of the Class B and
Class C shares if you redeem your investment during this time period. In
addition, more of your money would be invested initially in the case of Class C
shares, because of the relatively low initial sales charge, and all of your
money would be invested initially in the case of Class B shares, which are sold
at NAV.
If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the Class
B and Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and for more than 5 years in the
case of Class C shares for the higher cumulative annual distribution-related fee
on those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus the cumulative annual
distribution-related fees on Class A shares. This does not take into account the
time value of money, which further reduces the impact of the higher Class B or
Class C distribution-related fee on the investment, fluctuations in NAV, the
effect of the return on the investment over this period of time or redemptions
when the CDSC is applicable.
B-27
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES
BENEFIT PLAN. 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 Section 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 purchase 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 (1) the plan has at least
$1 million in existing assets or 250 eligible employees and (2) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 and
403(b)(7) or the Internal Revenue Code and plans that participate in the
PruArray Program (benefit plan recordkeeping service) (hereafter referred to as
a PruArray 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" includes stock issued by a plan sponsor,
shares of Prudential Mutual Funds and shares of certain unaffiliated mutual
funds that participate in the PruArray Plan (Participating Funds). "Existing
assets" also include monies invested in The Guaranteed Interest Account (GIA), a
group annuity insurance product issued by Prudential, the Guaranteed Insulated
Separate Account, a separate account operated by Prudential, and units of The
Stable Value Fund (SVF), an unaffiliated bank collective fund. Class A shares
may also be purchased at NAV by plans that have monies invested in GIA and SVF,
provided (1) the purchase is made with the proceeds of a redemption from either
GIA or SVF and (2) Class A shares are an investment option of the plan.
PRUARRAY ASSOCIATION BENEFIT PLANS. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are members
of a common trade, professional or membership association (Association) that
participate in the PruArray Plan provided that the Association enters into a
written agreement with Prudential. Such Benefit Plans or non-qualified plans may
purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (1) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (2) maintain their accounts with the Transfer Agent.
PRUARRAY SAVINGS PROGRAM. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under the
Program, a limited number of Prudential Mutual Funds are available for purchase
at NAV by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (1) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (2) spouses
of employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchase will be made at NAV.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by:
- officers of the Prudential Mutual Funds (including the Fund),
- employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent,
- employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,
- Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries,
- registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor provided that purchases
at NAV are permitted by such person's employer,
B-28
<PAGE>
- investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities, or within one
year in the case of Benefit Plans, (2) the purchase is made with proceeds
of a redemption of shares of any open-end non-money market fund sponsored
by the financial adviser's previous employer (other than a fund which
imposes a distribution or service fee of .25 or 1% or less) and (3) the
financial adviser served as the client's broker on the previous purchase,
and
- 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.
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.
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 the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See "How to Buy, Sell and Exchange Shares of the
Fund--Reducing or Waiving Class A's Initial Sales Charge" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
- an individual;
- the individual's spouse, their children and their parents;
- the individual's and spouse's Individual Retirement Account (IRA);
- any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will
be deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
- a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
- a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
- one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charge will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. The value of shares held directly with the Transfer Agent
and through your broker will not be aggregated to determine the reduced sales
charge. The value of existing holdings for purposes of determining the reduced
sales charge is calculated using the maximum offering or price (NAV plus maximum
sales charge) as of the previous business day. The Distributor or the Transfer
Agent must be notified at the time of purchase that the investor is entitled to
a reduced sales charge. The reduced sales charges will be granted subject to
confirmation of the investor's holdings. Rights of Accumulation are not
available to individual participants in any retirement or group plans.
B-29
<PAGE>
LETTER OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may also
qualify to purchase Class A shares at NAV by entering into a Letter of Intent
whereby they agree to enroll, within a thirteen-month period, a specified number
of eligible employees or participants (Participant Letter of Intent).
For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent,
Prudential or its affiliates and through your broker will not be aggregated to
determine the reduced sales charge.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the reduced
sales charge applicable to the amount represented by the goal, as if it were a
single investment. In the case of a Participant Letter of Intent, each
investment made during the period will be made at net asset value. Escrowed
Class A shares totaling 5% of the dollar amount of the Letter of Intent will be
held by the Transfer Agent in the name of the purchaser, except in the case of
retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent (except in the case of retirement and group plans),
may be back-dated up to 90 days, in order that any investments made during this
90-day period, valued at the purchaser's cost, can be applied to the fulfillment
of the Letter of Intent goal.
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated
number of eligible employees or participants. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser (or the
employer or plan sponsor in the case of any retirement or group plan) is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charge actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. If the goal
is exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or, in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to individual
participants in any retirement or group plans.
CLASS B SHARES
The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B shares may be subject to a CDSC. See "Sale of Shares--
Contingent Deferred Sales Charge" below.
The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, financial advisers and
other persons which sell Class B shares at the time of sale. This facilitates
the ability of the Fund to sell the Class B shares without an initial sales
charge being deducted at the time of purchase. The Distributor anticipates that
it will recoup its advancement of sales commissions from the combination of the
CDSC and the distribution fee.
CLASS C SHARES
The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.
CLASS Z SHARES
Class Z shares of the Fund currently are available for purchase by the
following categories of investors:
B-30
<PAGE>
- pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue
Code and non-qualified plans for which the Fund is an available option
(collectively, Benefit Plans), provided such Benefit Plans (in combination
with other plans sponsored by the same employer or group of related
employers) have at least $50 million in defined contribution assets;
- participants in any fee-based program sponsored by an affiliate of the
Distributor which includes mutual funds as investment options and for
which the Fund is an available option;
- certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by an affiliate of the Distributor for whom Class Z
shares of the Prudential Mutual Funds are an available option;
- Benefit Plans for which an affiliate of the Distributor serves as
recordkeeper and 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;
- current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund);
- employees of Prudential or Prudential Securities who participate in an
employer-sponsored employee savings plan; and
- Prudential with an investment of $10 million or more.
After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers, financial advisers and other persons
which distribute shares a finders' fee, from its own resources, based on a
percentage of the net asset value of shares sold by such persons.
SALE OF SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charges"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for that day (i.e.,
4:15 P.M., New York time) in order to receive that day's NAV. Your broker will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.
If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or to your broker.
SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4) are
to be paid to a corporation, partnership, trust or fiduciary, the signature(s)
on the redemption request and on the certificates, if any, or stock power must
be guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a PruArray Plan, if the proceeds of the
redemption are invested in another investment option of the plan in the name of
the record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through a
B-31
<PAGE>
broker, payment for shares presented for redemption will be credited to your
account at your broker, unless you indicate otherwise. Such payment may be
postponed or the right of redemption suspended at times (1) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (2)
when trading on such Exchange is restricted, (3) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (4) during any other period when the Commission,
by order, so permits; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (2), (3) or
(4) exist.
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, which may take 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 Trustees determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the
Commission. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. (If less than a full repurchase is made,
the credit will be on a PRO RATA basis.) You must notify the Transfer Agent,
either directly or through the Distributor or your broker, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
federal tax treatment of any gain realized upon redemption. However, if the
redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the amount
reinvested, may not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES 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 18 months of purchase will be subject to a 1% CDSC. The CDSC
will be deducted from the redemption proceeds and reduce the amount paid to you.
The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and 18 months, 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
acquired through reinvestment of dividends or distributions are not subject to a
CDSC. The amount of any CDSC will be paid to and retained by the Distributor.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund.
B-32
<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
- ------------------------------------------------------------------------------
<S> <C>
First......................................................................... 5.0%
Second........................................................................ 4.0%
Third......................................................................... 3.0%
Fourth........................................................................ 2.0%
Fifth......................................................................... 1.0%
Sixth......................................................................... 1.0%
Seventh....................................................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Fund shares made during the preceding six years; then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions are:
(1) in the case of a tax-deferred retirement plan, a lump-sum or other
distribution after retirement;
(2) in the case of an IRA (including a Roth IRA), a lump-sum or other
distribution after reaching age 59 1/2 or a periodic distribution based on
life expectancy;
(3) in the case of a Section 403(b) custodial account, a lump sum or other
distribution after reaching age 59 1/2; and
(4) a tax-free return of an excess contribution or plan distributions following
the death or disability of the shareholder, provided that the shares were
purchased prior to death or disability.
The waiver does not apply in the case of a tax-free rollover or transfer of
assets, other than one following a separation from service (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 CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
B-33
<PAGE>
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 or, for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Trustees of the Fund.
You must notify the Transfer Agent either directly or through your broker,
at the time of redemption, that you are entitled to waiver of the CDSC and
provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement.
In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate or, in
the case of a trust, a copy of the grantor's death
certificate, plus a copy of the trust agreement
identifying the grantor.
Disability--An individual will be A copy of the Social Security Administration award
considered disabled if he or she is letter or a letter from a physician on the
unable to engage in any substantial physician's letterhead stating that the shareholder
gainful activity by reason of any (or, in the case of a trust, the grantor) is
medically determinable physical or permanently disabled. The letter must also indicate
mental impairment which can be expected the date of disability.
to result in death or to be of
long-continued and indefinite duration.
Distribution from an IRA or 403(b) A copy of the distribution form from the custodial
Custodial Account firm indicating (1) the date of birth of the
shareholder and (2) that the shareholder is over age
59 and is taking a normal distribution--signed by
the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the
plan administrator/ trustee on company letterhead
indicating the amount of the excess and whether or
not taxes have been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents as it
may deem appropriate.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans for which
Prudential provides administrative or recordkeeping services that participate in
the PruArray Plan.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (1)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (2) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
B-34
<PAGE>
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase ($1,000 divided by
$2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The Manager
reserves the right to modify the formula for determining the number of Eligible
Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted.
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An investor
may direct the Transfer Agent in writing not less than five full business days
prior to the record date to have subsequent dividends or distributions sent in
cash rather than reinvested. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such dividend or
distribution at NAV by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the NAV
per share next determined after receipt of the check or proceeds by the Transfer
Agent. Such shareholder will receive credit for any CDSC paid in connection with
the amount of proceeds being reinvested.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of 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. 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.
B-35
<PAGE>
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC, at the address noted above.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
shares of certain other Prudential Mutual Funds, shares of Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the exchange privilege only to acquire Class A shares of
the Prudential Mutual Funds participating in the exchange privilege.
The following money market funds participate in the Class A exchange
privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, Inc.
No CDSC will be payable upon such exchange, but a CDSC may be payable upon the
redemption of the Class B and Class C shares acquired as a result of the
exchange. The applicable sales charge will be that imposed by the fund in which
shares were initially purchased and the purchase date will be deemed to be the
date of the initial purchase, rather than the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for Class B and
Class C shares, respectively, of an eligible money market fund without
imposition of any CDSC at the time of exchange. Upon subsequent redemption from
such money market fund or after re-exchange into the Fund, such shares will be
subject to the CDSC calculated without regard to the time such shares were held
in the money market fund. In order to minimize the period of time in which
shares are subject to a CDSC, shares exchanged out of the money market fund will
be exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. In measuring the time period
shares are held in a money market fund and "tolled" for purposes of calculating
the CDSC holding period, exchanges are deemed to have been made on the last day
of the month. Thus, if shares are exchanged into the Fund from a money market
fund during the month (and are held in the Fund at the end of the month), the
entire month will be included in the CDSC holding period. Conversely, if shares
are exchanged into a money
B-36
<PAGE>
market fund prior to the last day of the month (and are held in the money market
fund on the last day of the month), the entire month will be excluded from the
CDSC holding period. For purposes of calculating the seven year holding period
applicable to the Class B conversion feature, the time period during which Class
B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares of
any fund participating in the Class B or Class C exchange privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares which are not subject to a CDSC held
in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise. Similarly,
shareholders who qualify to purchase Class Z shares will have their Class B and
Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through Prudential Securities, Prusec or another broker that they are
eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at NAV.
Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on 60 days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)
B-37
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years...................... $ 110 $ 165 $ 220 $ 275
20 Years...................... 176 264 352 440
15 Years...................... 296 444 592 740
10 Years...................... 555 833 1,110 1,388
5 Years...................... 1,371 2,057 2,742 3,428
See "Automatic Investment
Plan."
</TABLE>
- --------------------------
(1)Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.
(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
AUTOMATIC INVESTMENT PLAN (AIP)
Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
brokerage account (including a Prudential Securities Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The investor's
bank must be a member of the Automatic Clearing House System. Share certificates
are not issued to AIP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or your broker. Such withdrawal plan provides
for monthly or quarterly checks in any amount, except as provided below, up to
the value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC.
In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3) the
shareholder must elect to have all dividends and/or distributions automatically
reinvested in additional full and fractional shares at NAV on shares held under
this plan.
The Transfer Agent, the Distributor or your broker act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (1) the purchase of Class
A and Class C shares and (2) the redemption of Class B and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.
TAX-DEFERRED RETIREMENT PLANS
Various qualified retirement plans, including a 401(k) plan, self-directed
individual retirement accounts and "tax-deferred accounts" under Section
403(b)(7)of the Internal Revenue Code are available through the Distributor.
These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by participants,
or a pooled account arrangement. Information regarding the establishment of
these plans, and the administration, custodial fees and other details are
available from the Distributor or the Transfer Agent.
B-38
<PAGE>
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.
<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when withdrawn
from the account. Distributions from a Roth IRA which meet the conditions
required under the Internal Revenue Code will not be subject to tax upon
withdrawal from the account.
MUTUAL FUND PROGRAMS
From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, 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. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, investors should consult their financial adviser
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
The Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. 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 NAV to be as of 4:15
P.M., New York time. The Fund will compute its NAV at 4:15 P.M., New York time,
on each day the New York Stock Exchange is open for trading except on days on
which no orders to purchase, sell or redeem Fund shares have been received or
days on which changes in the value of the Fund's portfolio securities do not
affect NAV. In the event the New York Stock Exchange closes early on any
business day, the NAV of the Fund's shares shall be determined at a time between
such closing and 4:15 P.M., New York time. The New York Stock Exchange is closed
on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Under the Investment Company Act, the Board of Trustees is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Trustees, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on such exchange system on the day of valuation, or, if there
was no sale on such day, the mean between the last bid and asked prices on such
day as provided by a pricing service or at the bid price on such day in the
absence of an asked
B-39
<PAGE>
price. Corporate bonds (other than convertible debt securities) and U.S.
Government securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Manager in consultation with the Subadviser to be over-the-counter, are valued
on the basis of valuations provided by a pricing service or principal market
maker which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Manager in consultation with the Subadviser to be over-the-counter, are valued
at the mean between the last reported bid and asked prices provided by principal
market makers or independent pricing agents. Options on stock and stock indices
traded on an exchange are valued at the mean between the most recently quoted
bid and asked prices on the respective exchange and futures contracts and
options thereon are valued at their last sale prices as of the close of trading
on the applicable commodities exchange or board of trade or, if there was no
sale on the applicable commodities exchange or board of trade on such day, at
the mean between the most recently quoted bid and asked prices on such exchange
or board of trade. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents at the current rate obtained from a
recognized bank or dealer and 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 an investment adviser under procedures established by and under the
general supervision of the Fund's Board of Trustees.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Trustees), does not represent fair value, are valued by the Valuation
Committee or Board of Trustees in consultation with the Manager and Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors: cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager, Subadviser, Board of Trustees or
Valuation Committee to materially affect the value of the security. Short-term
investments are valued at cost, with interest accrued or discount amortized to
the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Board of Trustees not to represent fair value.
Short-term securities with remaining maturities of more than 60 days, for which
market quotations are readily available, are valued at their current market
quotations as supplied by an independent pricing agent or principal market
maker.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV of Class A, Class B
or Class C shares because Class Z shares are not subject to any distribution or
service fee. It is expected, however, that the NAV 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 Fund intends to qualify and to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. This
relieves the Fund (but not its shareholders) from paying federal income tax on
income and capital gains which are distributed to shareholders and permits net
capital gains of the Fund (I.E., the excess of net long-term capital gains over
net short-term capital losses) to be treated as long-term capital gains of the
shareholders, regardless of how long shareholders have held their shares in the
Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans and
gains from the sale or other disposition of securities or options thereon or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) the Fund diversify its holdings
so that, at the end of each fiscal quarter (1) at least 50% of the value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the value of the Fund's assets and 10% of the outstanding voting securities
of such issuer, and (2) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government securities); and
(c) the Fund distribute to its shareholders at least 90% of its net investment
income and net short-term gains (I.E., the excess of net short-term capital
gains over net long-term capital losses) in each year.
B-40
<PAGE>
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon or otherwise holds an offsetting position with respect to
the securities. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Fund's transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle provisions of
the Internal Revenue Code which may, among other things, require the Fund to
defer recognition of losses.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "Investment Objective and Policies." These investments will
generally constitute Section 1256 contracts and will be required to be
"marked-to-market" for federal income tax purposes at the end of the Fund's
taxable year; that is, treated as having been sold at market value. Except with
respect to certain forward foreign currency exchange contracts, 60% of any gain
or loss recognized on such deemed sales and on actual dispositions will be
treated as long-term capital gain or loss subject to a maximum 20% rate, and the
remainder will be treated as short-term capital gain or loss.
Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices will be capital gain or loss and will be
long-term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain wash
sale, short sale and constructive sale provisions of the Internal Revenue Code.
In the case of a straddle, the Fund may be required to defer the recognition of
losses on positions it holds to the extent of any unrecognized gain on
offsetting positions held by the Fund. The conversion transaction rules may
apply to certain transactions to treat all or a portion of the gain thereon as
ordinary income rather than as capital gain.
A "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock or of any gain from disposition of the stock (collectively, PFIC
income), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly, will
not be taxable to the extent that income is distributed to its shareholders. The
Fund may make a "mark-to-market" election with respect to any marketable stock
it holds of a PFIC. If the election is in effect, at the end of the Fund's
taxable year, the Fund will recognize the amount of gains, if any, as ordinary
income with respect to PFIC stock. No loss will be recognized on PFIC stock,
except to the extent of gains recognized in prior years. Alternatively, the
Fund, if it meets certain requirements, may elect to treat any PFIC in which it
invests as a "qualified electing fund," in which case, in lieu of the foregoing
tax and interest obligation, the Fund will be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Fund;
those amounts would be subject to the distribution requirements applicable to
the Fund described above.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or ordinary
loss. Similarly, gains or losses on forward foreign currency exchange contracts
or dispositions of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition also may be
treated as ordinary gain or loss. These gains, referred to under the Internal
Revenue Code as "Section 988" gains or losses, increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
its shareholders as ordinary income, rather than increasing or decreasing the
amount of the Fund's net capital gain. If Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, or distributions made before
the losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his or her Fund shares.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these
B-41
<PAGE>
distribution requirements, the Fund will be subject to a nondeductible 4% excise
tax on the undistributed amount. For purposes of this excise tax, income on
which the Fund pays income tax is treated as distributed. The Fund intends to
distribute amounts sufficient to avoid imposition of excise tax.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share NAV 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 the Fund, the investor should carefully consider the impact
of dividends, including capital gains distributions, which are expected to be or
have been announced.
Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Net capital gain dividends paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to pay U.S. income tax on any dividends and capital
gain distributions which are effectively connected with a U.S. trade or business
of the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. The Fund does not expect
to meet the requirements of the Internal Revenue Code for "passing-through" to
its shareholders any foreign income taxes paid.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.
Average annual total return is computed according to the following formula:
P(1+T)to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1, 5 or 10 year periods
Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus of the Fund.
B-42
<PAGE>
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1, 5
or 10 year periods (or fractional portion thereof).
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The Fund may use total return figures showing after-tax returns, including
comparisons to tax-deferred vehicles such as Individual Retirement Accounts
(IRAs) and variable annuities. In calculating after-tax returns, the Fund will,
in general, assume that its shareholders are U.S. individual taxpayers subject
to federal income taxes at the highest marginal rate then applicable to ordinary
income and long-term capital gains. After-tax returns may also be calculated
using different tax rate assumptions and taking into account state and local
income taxes as well as federal taxes. In calculating after-tax returns,
distributions made by the Fund are assumed to be reduced by the amount of taxes
payable on the distribution, and the after-tax proceeds of the distribution are
reinvested in the Fund at NAV on the reinvestment date.
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
YIELD=2[(a-b+1)(to the power of 6)-1]
------------
cd
<TABLE>
<C> <S>
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
</TABLE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.
B-43
<PAGE>
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. Set forth below
is a chart which compares the performance of different types of investments over
the long-term and the rate of inflation.(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
A LOOK AT PERFORMANCE
OVER THE LONG - TERM
AVERAGE ANNUAL
RETURNS
1/1/26 12/31/97
Long-Term Govt.
Common Stocks Bonds Inflation
<S> <C> <C>
11.0% 5.2% 3.1%
</TABLE>
- ------------------------
(1)Source: Ibbotson Associates, STOCKS, BONDS, BILLS AND INFLATION--1998
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.
Advertising for the Fund also may describe the performance of the stock
market over the last three years, which has shown dynamic growth based on the
performance of the Standard & Poor's 500 Stock Index, according to Standard &
Poor's Ratings Group. Over the past 20 years, value investing and growth
investing have each been successful, but one style or the other has delivered
the higher returns in a given year, based on the performance of the stocks in
the S&P/Barra Growth Index and the S&P/ Barra Value Index, each of which are
unmanaged, capitalization weighted indices. The Growth Index includes stocks in
the S&P 500 with higher price-to-book ratios and the Value Index includes stocks
in the S&P 500 with lower price-to-book ratios. Results assume reinvestment of
dividends.
B-44
<PAGE>
PRUDENTIAL TAX-MANAGED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
, 1998
-----------------
<S> <C>
ASSETS
Cash.................................................................................................. $ 100,000
--------
Total assets...................................................................................... 100,000
--------
Net Assets (Note 1)
Applicable to 10,000 shares of beneficial interest.................................................. $ 100,000
--------
--------
Calculation of Offering Price
Class A:
Net asset value and redemption price per Class A share.............................................. $ 10.00
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding)
Maximum sales charge (5.0% of offering price)....................................................... .53
--------
Maximum offering price to public.................................................................... $ 10.53
--------
--------
Class B:
Net asset value, offering price and redemption price per Class B share.............................. $ 10.00
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding) --------
--------
Class C:
Net asset value, offering price and redemption price per Class C share.............................. $ 10.00
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding)
Sales charge (1.0% of offering price)............................................................... .10
--------
Offering price to public............................................................................ $ 10.10
--------
--------
Class Z:
Net asset value, offering price and redemption price per Class Z share.............................. $ 10.00
($25,000 DIVIDED BY 2,500 shares of beneficial interest issued and outstanding) --------
--------
</TABLE>
See Notes to Financial Statement.
B-45
<PAGE>
PRUDENTIAL TAX-MANAGED EQUITY FUND
NOTES TO FINANCIAL STATEMENT
NOTE 1. Prudential Tax-Managed Equity Fund (the Fund), which was organized
as a business trust in Delaware on September 21, 1998, is an open-end,
diversified management investment company. The Fund has had no significant
operations other than the issuance of 2,500 shares each of Class A, Class B,
Class C and Class Z shares of beneficial interest for $100,000 on ,
1998 to Prudential Investments Fund Management LLC (PIFM).
Costs incurred and expected to be incurred in connection with the
organization and offering of the Fund will be paid by PIFM.
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 .65 of 1% of the average daily net assets of the Fund.
Pursuant to a subadvisory agreement between PIFM and The Prudential
Investment Corporation (PIC), doing business as Prudential Investments (PI),
PIFM furnishes investment advisory services pursuant to the management agreement
and supervises PI's performance of such services. PIFM pays for the services of
PI, the cost of compensation of officers and employees of the Fund, occupancy
and certain clerical and accounting costs of the Fund. The Fund bears all other
costs and expenses.
The Fund has entered into a distribution agreement with Prudential
Investment Management Services LLC (the Distributor) for distribution of the
Fund's shares.
Pursuant to separate Plans of Distribution (the Class A Plan, the Class B
Plan and the Class C Plan, collectively the Plans) adopted by the Fund under
Rule 12b-1 of the Investment Company Act of 1940, as amended, Prudential
Securities Incorporated 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 Incorporated 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
Incorporated 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.
Pursuant to the Class B and Class C Plans, the Fund compensates the
Distributor for its distribution-related expenses with respect to the Class B
and C shares at an annual rate of 1% of the average daily net assets of the
Class B and C shares.
The Distributor incurs the expense of distributing the Fund's Class Z shares
under a distribution agreement with the Fund, none of which is paid for or
reimbursed by the Fund.
Prudential Mutual Fund Services LLC (PMFS), a wholly-owned subsidiary of
PIFM, serves as the Fund's transfer agent.
PIFM, PIC and the Distributor are wholly-owned subsidiaries of The
Prudential Insurance Company of America.
B-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
Prudential Tax-Managed Equity Fund
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Prudential
Tax-Managed Equity Fund (the "Fund") at , 1998, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
1177 Avenue of the Americas
New York, New York
, 1998
B-47
<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, that is, principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
I-1
<PAGE>
APPENDIX II--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY.
EDGAR REPRESENTATION OF CHART
VALUE OF $1.00 INVESTED
ON 1/1/26 THROUGH 12/31/97.
SMALL STOCKS $5,519.97
COMMON STOCKS $1,828.33
LONG-TERM BONDS $39.07
TREASURY BILLS $14.25
INFLATION $9.02
Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is for illustrative
purposes only and is not indicative of the past, present, or future performance
of any asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and the reinvestment of
gains. Bond returns are due mainly to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index of 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 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 the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
<CAPTION>
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97
- ----------------------------------------------------------------------------------------------------------------------
<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 RETURN
PERCENT 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.12
</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.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1986 through December 31, 1997. It does not represent
the performance of any Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS (12/31/86 - 12/31/97)
IN U.S. DOLLARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
The Netherlands 20.5%
Sweden 20.4%
Spain 20.4%
Hong Kong 19.7%
Belgium 19.5%
Switzerland 17.9%
USA 17.1%
UK 16.6%
France 15.6%
Germany 12.1%
Austria 9.6%
Japan 6.6%
</TABLE>
Source: Morgan Stanley Capital International (MSCI) and Lipper Analytical
Services, Inc. Used with permission. Morgan Stanley Country indices are
unmanaged indices which include those stocks making up the largest two-thirds of
each country's total stock market capitalization. Returns reflect the
reinvestment of all distributions. This chart is for illustrative purposes only
and is not indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
EDGAR Representation of Chart
1969-1996
Capital Appreciation Only -- $105,413
Capital Appreciation and Reinvesting Dividends
- -- $304,596
Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
WORLD STOCK MARKET CAPITALIZATION BY REGION
World Total: $12.5 Trillion
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Canada 2.5%
U.S. 49.8%
Europe 32.1%
Pacific
Basin 15.6%
</TABLE>
Source: Morgan Stanley Capital International, December 31, 1998. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
1577 companies in 22 countries (representing approximately 60% of the aggregate
market value of the stock exchanges). This chart is for illustrative purposes
only and does not represent the allocation of any Prudential Mutual Fund.
II-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1997)
[CHART]
Source: Stocks, Bonds, Bills, and Inflation 1998 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 1926-1997. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.
II-4
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
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,
1997. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and nearly
6,500 financial advisors. Prudential is a major issuer of annuities, including
variable annuities. Prudential seeks to develop innovative products and services
to meet consumer needs in each of its business areas. Prudential uses the Rock
of Gibraltar as its symbol. Prudential rock is a recognized brand name
throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 40 million people worldwide.
Long one of the largest issuers of individual life insurance, Prudential has 25
million life insurance policies and group certificates in force today with a
face value of almost $1 trillion. Prudential has the largest capital base ($12.1
billion) of any life insurance company in the United States. Prudential provides
auto insurance for approximately 1.5 million cars and insures approximately 1.2
million homes.
MONEY MANAGEMENT. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It manages
$36 billion of individual retirement plan assets, such as 401(k) plans. As of
December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $211 billion in assets of
institutions and individuals. In PENSIONS & INVESTMENTS, May 12, 1997,
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 and more than 1,100 offices throughout the United States.(2)
HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Savings Bank FSB, 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 was the 18th
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with more
than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
- ------------------------
(1) PIC serves as the subadviser to substantially all of the Prudential Mutual
Funds. Wellington Management Company serves as the subadviser to Global
Utility Fund, Inc., Nicholas-Applegate Capital Management as the subadviser
to Nicholas-Applegate Fund, Inc., Jennison Associates LLC as a subadviser to
The Prudential Investment Portfolios, Inc. and Mercator Asset Management LP
as the subadviser to International Stock Series, a portfolio of Prudential
World Fund, Inc. There are multiple subadvisers for The Target Portfolio
Trust.
(2) As of December 31, 1996.
III-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 Growth Fund, a growth-style
equity fund managed by Jennison Associates LLC, a premier institutional equity
manager and a subsidiary of Prudential.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitors
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase.(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 LLC, 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, 1996. 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 Investments, a business group 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.
III-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.
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 Architect-SM-, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ------------------------
(7) As of December 31, 1997.
(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.
III-3
<PAGE>
OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<S> <C> <C>
(a) (1) Agreement and Declaration of Trust.*
(2) Certificate of Trust.*
(b) By-Laws.*
(c) Instruments defining rights of shareholders.*
(d) (1) Form of Management Agreement between the Registrant and
Prudential Investments Fund Management LLC.*
(2) Form of Subadvisory Agreement between Prudential Investments
Fund Management LLC and The Prudential Investment
Corporation.*
(e) (1) Form of Distribution Agreement between the Registrant and
Prudential Investment Management Services LLC.*
(2) Form of Selected Dealer Agreement.*
(g) Custodian Contract between the Registrant and State Street
Bank and Trust Company.*
(h) Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services LLC.*
(i) Opinion of Gardner, Carton & Douglas.**
(j) Consent of Independent Accountants.**
(l) Purchase Agreement.**
(m) (1) Distribution and Service Plan for Class A Shares.*
(2) Distribution and Service Plan for Class B Shares.*
(3) Distribution and Service Plan for Class C Shares.*
(o) Rule 18f-3 Plan.*
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act) and pursuant to Del. Code Ann. title 12 sec. 3817, a
Delaware business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article VII, Section 2 of the Agreement and Declaration
of Trust (Exhibit (a)(1) to Registration Statement) states that (1) the
Registrant shall indemnify any present trustee or officer to the fullest extent
permitted by law against liability, and all expenses reasonably incurred by him
or her in connection with any claim, action, suit or proceeding in which he or
she is involved by virtue of his or her service as a trustee, officer or both,
and against any amount incurred in settlement thereof and (2) all persons
extending credit to, contracting with or having any claim against the Registrant
shall look only to the assets of the appropriate Series (or if no Series has yet
been established, only to the assets of the Registrant). Indemnification will
not be provided to a person adjudged by a court or other adjudicatory body to be
liable to the Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of his or her duties
(collectively "disabling conduct"). In the event of a settlement, no
indemnification may be provided unless there has been a determination, as
specified in the Declaration of Trust, that the officer or trustee did not
engage in disabling conduct. In addition, Article XI of Registrant's By-Laws
(Exhibit (b) to the Registration Statement) provides that any trustee, officer,
employee or other agent of Registrant shall be indemnified by the Registrant
against all liabilities and expenses subject to certain limitations and
exceptions contained in Article XI of the By-Laws. As permitted by Section 17(i)
of the 1940
C-1
<PAGE>
Act, pursuant to Section 10 of the Distribution Agreement (Exhibit (e)(1) to the
Registration Statement), the Distributor of the Registrant may be indemnified
against liabilities which it may incur, except liabilities arising from bad
faith, gross negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act) may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
trustees against liabilities, and certain costs of defending claims against such
officers and trustees, to the extent such officers and trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(2) 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, Declaration of Trust and the Distribution Agreement
in a manner consistent with Release No. 11330 of the Securities and Exchange
Commission under the 1940 Act so long as the interpretation of Section 17(h) and
17(i) of such Act remain in effect and are consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either the
Registrant, its investment adviser, its principal underwriter or persons
affiliated with these persons) determines, based upon a review of the facts,
that the person in question was not guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office.
Under its Declaration of Trust, the Registrant may advance funds to provide
for indemnification. Pursuant to the Securities and Exchange Commission staff's
position on Section 17(h) advances will be limited in the following respect:
(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including
cost connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise by, or on behalf
of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or other suitable
insurance; and
(4) Such surety bond or other insurance must be paid for by the recipient of
such advance.
C-2
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Prudential Investments Fund Management LLC (PIFM)
See "How the Fund Is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" in
the Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, NJ
07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
Robert F. Gunia Executive Vice President and Vice President, Prudential Investments; Executive Vice
Treasurer President and Treasurer, PIFM; Senior Vice President
of Prudential Securities
Neil A. McGuiness Executive Vice President Executive Vice President and Director of Marketing,
Prudential Mutual Funds & Annuities (PMF&A); Executive
Vice President, PIFM
Brian Storms Officer-In-Charge, President, Chief President, PMF&A; Officer-In-Charge, President, Chief
Executive Officer and Chief Executive Officer and Chief Operating Officer, PIFM
Operating Officer
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice
President, PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund Is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" in
the Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. The address of each person is Prudential Plaza, Newark,
NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------ ------------------------------------------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, President, Chief Executive Officer of Prudential Investments of
Chief Executive Officer and Director The Prudential Insurance Company of America
(Prudential)
John R. Strangfeld, Jr. Vice President and Director President of Private Asset Management Group of
Prudential; Senior Vice President, Prudential; Vice
President and Director, PIC
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Prudential Investment Management Services LLC (PIMS)
C-3
<PAGE>
PIMS is distributor for the Cash Accumulation Trust, Command Money Fund,
Command Government Fund, Command Tax-Free Fund, The Global Total Return Fund,
Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Government Securities Trust, Prudential High Yield Fund, Inc., Prudential High
Yield Total Return Fund, Inc., Prudential Index Series Fund, Prudential
Institutional Liquidity Portfolio, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential International Bond Fund, Inc., Prudential Mid-Cap Value
Fund, Prudential MoneyMart Assets, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Municipal Bond Fund, Prudential Municipal Series Fund, Prudential
National Municipals Fund, Inc., Prudential Natural Resources Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities Fund,
Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company Value Fund,
Inc., Prudential Special Money Market Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential Tax-Managed Equity Fund, Prudential 20/20 Focus Fund,
Prudential Utility Fund, Inc., Prudential World Fund, Inc., The Prudential
Investment Portfolios, Inc. and The Target Portfolio Trust.
(b) Information concerning the directors and officers of PIMS is set forth
below:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME (1) UNDERWRITER REGISTRANT
- ------------------------------ --------------------------------------------- --------------
<S> <C> <C>
E. Michael Caulfield.......... President None
Mark R. Fetting............... Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Jean D. Hamilton.............. Executive Vice President None
Ronald P. Joelson............. Executive Vice President None
Brian M. Storms............... Executive Vice President President and
Gateway Center Three Trustee
100 Mulberry Street
Newark, New Jersey 07102
John R. Strangfeld............ Executive Vice President None
Mario A. Mosse................ Senior Vice President and Chief Operating None
Officer
Scott S. Wallner.............. Vice President, Secretary and Chief Legal None
Officer
Michael G. Williamson......... Vice President, Comptroller and Chief None
Financial Officer
C. Edward Chaplin............. Treasurer None
</TABLE>
- ------------
(1) The address of each person named is Prudential Plaza, Newark, New Jersey
07102 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
C-4
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway Center
Three, Newark, New Jersey 07102-4077, and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11), 31a-1(f), 31a-1(b)(4) and (11) and
31a-1(d) will be kept at Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077 and the remaining accounts, books and other documents required
by such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the captions "How the Fund Is
Managed--Manager" and "How the Fund Is Managed-- Distributor" in the Prospectus
and the caption "Investment Advisory and Other Services" in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-related
service contract.
ITEM 30. UNDERTAKING.
Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Newark, and State of New Jersey, on the 5th day of November, 1998.
PRUDENTIAL TAX-MANAGED EQUITY FUND
By /s/ MARGUERITE E.H. MORRISON
------------------------------------------
Marguerite E.H. Morrison,
PRESIDENT
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DEBORAH A. DOCS
- ------------------------------ Trustee November 5, 1998
Deborah A. Docs
/s/ MARGUERITE E.H. MORRISON
- ------------------------------ President and Trustee November 5, 1998
Marguerite E.H. Morrison
Trustee and
/s/ ROBERT C. ROSSELOT Treasurer and Principal
- ------------------------------ Financial November 5, 1998
Robert C. Rosselot and Accounting Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------------
<C> <S>
(a) (1) Agreement and Declaration of Trust.*
(2) Certificate of Trust.*
(b) By-Laws.*
(c) Instruments defining rights of shareholders.*
(d) (1) Form of Management Agreement between the Registrant and Prudential Investments Fund Management LLC.*
(2) Form of Subadvisory Agreement between Prudential Investments Fund Management LLC and The Prudential
Investment Corporation.*
(e) (1) Form of Distribution Agreement between the Registrant and Prudential Investment Management Services LLC.*
(2) Form of Selected Dealer Agreement.*
(g) Custodian Contract between the Registrant and State Street Bank and Trust Company.*
(h) Transfer Agency and Service Agreement between the Registrant and Prudential Mutual Fund Services LLC.*
(i) Opinion of Gardner, Carton & Douglas.**
(j) Consent of Independent Accountants.**
(l) Purchase Agreement.**
(m) (1) Distribution and Service Plan for Class A Shares.*
(2) Distribution and Service Plan for Class B Shares.*
(3) Distribution and Service Plan for Class C Shares.*
(o) Rule 18f-3 Plan.*
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
of
PRUDENTIAL TAX-MANAGED EQUITY FUND
a Delaware Business Trust
Principal Place of Business:
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND DECLARATION OF TRUST
Page
----
ARTICLE I Name and Definitions. . . . . . . . . . . . . . . . . . . 1
1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) By-Laws. . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Certificate of Trust . . . . . . . . . . . . . . . . . 1
(c) Class. . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Commission and Principal Underwriter . . . . . . . . . 2
(e) Declaration of Trust . . . . . . . . . . . . . . . . . 2
(f) Delaware Act . . . . . . . . . . . . . . . . . . . . . 2
(g) Interested Person. . . . . . . . . . . . . . . . . . . 2
(h) Investment Manager or Manager. . . . . . . . . . . . . 2
(i) 1940 Act . . . . . . . . . . . . . . . . . . . . . . . 2
(j) Person . . . . . . . . . . . . . . . . . . . . . . . . 2
(k) Series . . . . . . . . . . . . . . . . . . . . . . . . 2
(l) Shareholder. . . . . . . . . . . . . . . . . . . . . . 2
(m) Shares . . . . . . . . . . . . . . . . . . . . . . . . 2
(n) Trust. . . . . . . . . . . . . . . . . . . . . . . . . 2
(o) Trust Property . . . . . . . . . . . . . . . . . . . . 2
(p) Trustees . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II Purpose of Trust . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III Shares. . . . . . . . . . . . . . . . . . . . . . . . . 3
1. Division of Beneficial Interest . . . . . . . . . . . . . . 3
2. Ownership of Shares . . . . . . . . . . . . . . . . . . . . 4
3. Transfer of Shares. . . . . . . . . . . . . . . . . . . . . 5
4. Investments in the Trust. . . . . . . . . . . . . . . . . . 5
5. Status of Shares and Limitation of Personal Liability . . . 5
6. Establishment and Designation of Series . . . . . . . . . . 5
(a) Assets Held with Respect to a Particular Series. . . . 6
(b) Liabilities Held with Respect to a
Particular Series. . . . . . . . . . . . . . . . . . . 7
(c) Dividends, Distributions, Redemptions,
and Repurchases. . . . . . . . . . . . . . . . . . . . 7
(d) Equality . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Fractions. . . . . . . . . . . . . . . . . . . . . . . 8
(f) Exchange Privilege . . . . . . . . . . . . . . . . . . 8
(g) Combination of Series. . . . . . . . . . . . . . . . . 8
(h) Elimination of Series. . . . . . . . . . . . . . . . . 8
7. Indemnification of Shareholders . . . . . . . . . . . . . . 8
<PAGE>
ARTICLE IV The Board of Trustees. . . . . . . . . . . . . . . . . . 8
1. Number, Election and Tenure . . . . . . . . . . . . . . . . 8
2. Effect of Death, Resignation, etc. of a Trustee . . . . . . 9
3. Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Payment of Expenses by the Trust. . . . . . . . . . . . . . 14
5. Payment of Expenses by Shareholders . . . . . . . . . . . . 14
6. Ownership of Assets of the Trust. . . . . . . . . . . . . . 14
7. Service Contracts . . . . . . . . . . . . . . . . . . . . . 15
8. Trustees and Officers as Shareholders . . . . . . . . . . . 17
ARTICLE V Shareholders' Voting Powers and Meetings. . . . . . . . . 17
1. Voting Powers, Meetings, Notice and Record Dates. . . . . . 17
2. Quorum and Required Vote. . . . . . . . . . . . . . . . . . 18
3. Record Dates. . . . . . . . . . . . . . . . . . . . . . . . 18
4. Additional Provisions . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI Net Asset Value, Distributions and Redemptions . . . . . 19
1. Determination of Net Asset Value, Net Income
and Distributions . . . . . . . . . . . . . . . . . . . . . 19
2. Redemptions and Repurchases . . . . . . . . . . . . . . . . 19
ARTICLE VII Compensation and Limitation of Liability of Trustees. . 21
1. Compensation. . . . . . . . . . . . . . . . . . . . . . . . 21
2. Indemnification and Limitation of Liability . . . . . . . . 21
3. Trustee's Good Faith Action, Expert Advice,
No Bond or Surety . . . . . . . . . . . . . . . . . . . . . 22
4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII Miscellaneous. . . . . . . . . . . . . . . . . . . . . 22
1. Liability of Third Persons Dealing with Trustees. . . . . . 22
2. Termination of Trust or Series. . . . . . . . . . . . . . . 23
3. Reorganization and Master/Feeder. . . . . . . . . . . . . . 23
4. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 25
5. Filing of Copies, References, Headings. . . . . . . . . . . 25
6. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . 26
7. Provisions in Conflict with Law or Regulations. . . . . . . 26
8. Business Trust Only . . . . . . . . . . . . . . . . . . . . 27
9. Derivative Actions. . . . . . . . . . . . . . . . . . . . . 27
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
PRUDENTIAL TAX-MANAGED EQUITY FUND
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of the
date set forth below by the Trustees named hereunder for the purpose of forming
a Delaware business trust in accordance with the provisions hereinafter set
forth,
NOW, THEREFORE, the Trustees hereby direct that the Certificate of Trust be
filed with the Office of the Secretary of State of the State of Delaware and do
hereby declare that the Trustees will hold IN TRUST all cash, securities and
other assets which the Trust now possesses or may hereafter acquire from time to
time in any manner and manage and dispose of the same upon the following terms
and conditions for the benefit of the holders of Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Prudential Tax-Managed
Equity Fund and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time, which By-Laws are expressly herein incorporated by reference as part of
the "governing instrument" within the meaning of the Delaware Act;
(b) "Certificate of Trust" means the certificate of trust, as amended or
restated from time to time, filed by the Trustees in the Office of the Secretary
of State of the State of Delaware in accordance with the Delaware Act;
<PAGE>
(c) "Class" means a class of Shares of a Series of the Trust established in
accordance with the provisions of Article III hereof;
(d) "Commission" and "Principal Underwriter" shall have the meanings given
them in the 1940 Act;
(e) "Declaration of Trust" means this Agreement and Declaration of Trust,
as amended or restated from time to time;
(f) "Delaware Act" means the Delaware Business Trust Act, 12 Del. C. ss.ss.
3801 et seq., as amended from time to time;
(g) "Interested Person" shall have the meaning given it in Section 2(a)
(19) of the 1940 Act;
(h) "Investment Manager" or "Manager" means a party furnishing services to
the Trust pursuant to any contract described in Article IV, Section 7(a) hereof;
(i) "1940 Act" means the Investment Company Act of 1940 and the Rules and
Regulations thereunder, all as amended from time to time;
(j) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures, estates and other entities, whether or
not legal entities, and governments and agencies and political subdivisions
thereof, whether domestic or foreign;
(k) "Series" means each Series of Shares established and designated under
or in accordance with the provisions of Article III;
(l) "Shareholder" means a record owner of outstanding Shares;
(m) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(n) "Trust" means the Delaware Business Trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate of
Trust in the Office of the Secretary of State of the State of Delaware;
(o) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is from time to time owned or held by or for the account of
the Trust; and
-2-
<PAGE>
(p) "Trustees" means the persons who have signed this Declaration of Trust
and all other Persons who may from time to time be duly elected or appointed to
serve as Trustees in accordance with the provisions hereof, in each case so long
as such Person shall continue in office in accordance with the terms of this
Declaration of Trust, and reference herein to a Trustee or the Trustees shall
refer to such Person or Persons in his or their capacity as trustees hereunder.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the business
of a management investment company registered under the 1940 Act through one or
more Series investing primarily in securities, and to carry on such other
business as the Trustees may from time to time determine pursuant to their
authority under this Declaration of Trust.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall be divided into one or more Series. Each Series may be
divided into two or more Classes. Subject to the further provisions of this
Article III and any applicable requirements of the 1940 Act, the Trustees
shall have full power and authority, in their sole discretion, and without
obtaining any authorization or vote of the Shareholders of any Series or
Class thereof, (i) to divide the beneficial interest in each Series or Class
thereof into Shares, with or without par value as the Trustees shall
determine, (ii) to issue Shares without limitation as to number (including
fractional Shares), to such Persons and for such amount and type of
consideration, subject to any restriction set forth in the By-Laws, including
cash or securities, at such time or times and on such terms as the Trustees
may deem appropriate, (iii) to establish and designate and to change in any
manner any Series or Class thereof and to fix such preferences, voting
powers, rights, duties and privileges and business purpose of each Series or
Class thereof as the Trustees may from time to time determine, which
preferences, voting powers, rights, duties and privileges may be senior or
subordinate to (or in the case of business purpose, different from) any
existing Series or Class thereof and may be limited to specified property or
-3-
<PAGE>
obligations of the Trust or profits and losses associated with specified
property or obligations of the Trust, (iv) to divide or combine the Shares of
any Series or Class thereof into a greater or lesser number without thereby
materially changing the proportionate beneficial interest of the Shares of
such Series or Class in the assets held with respect to that Series, (v) to
classify or reclassify any issued Shares of any Series or Class thereof into
shares of one or more Series or Classes thereof and (vi) to take such other
action with respect to the Shares as the Trustees may deem desirable.
Subject to the distinctions permitted among Classes of the same Series as
established by the Trustees consistent with the requirements of the 1940 Act,
each Share of a Series of the Trust shall represent an equal beneficial interest
in the net assets of such Series, and each holder of Shares of a Series shall be
entitled to receive such holder's pro rata share of distributions of income and
capital gains, if any, made with respect to such Series. Upon redemption of the
Shares of any Series, the applicable Shareholder shall be paid solely out of the
funds and property of such Series of the Trust.
All references to Shares in this Declaration of Trust shall be deemed to be
Shares of any or all Series or Classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust and each Class thereof, except as the context otherwise requires.
All Shares issued hereunder, including, without limitation, Shares issued
in connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and non-assessable. Except as otherwise provided by the
Trustees, Shareholders shall have no preemptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.
Section 2. Ownership of Shares. The Ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series (or
Class). No certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time to time.
The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the transfer of Shares of each Series (or
Class) and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to the identity of the Shareholders of each Series (or Class)
and as to the number of Shares of each Series (or Class) held from time to
time by each Shareholder.
-4-
<PAGE>
Section 3. Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his duly authorized agent upon delivery to the
Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee or
agent of the Trust, shall be affected by any notice of a proposed transfer.
Section 4. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize.
Section 5. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in
this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof. The
death, incapacity, dissolution, termination or bankruptcy of a Shareholder
during the existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any such Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
entitles such representative only to the rights of such Shareholder under
this Trust. Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust Property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders as partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.
Section 6. Establishment and Designation of Series. The establishment and
designation of any Series (or Class) of Shares shall be effective upon the
adoption by a majority of the then Trustees of a
-5-
<PAGE>
resolution that sets forth such establishment and designation and the
relative rights and preferences of such Series (or Class), whether directly
in such resolution or by reference to another document including, without
limitation, any registration statement of the Trust, or as otherwise provided
in such resolution.
Shares of each Series (or Class) established pursuant to this Article III,
unless otherwise provided in the resolution establishing such Series, shall have
the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
to the rights of creditors of such Series, and shall be so recorded upon the
books of account of the Trust. Such consideration, assets, income, earnings,
profits and proceeds thereof, from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are any assets,
income, earnings, profits and proceeds thereof, funds or payments which are not
readily identifiable as assets held with respect to any particular Series
(collectively "General Assets"), the Trustees shall allocate such General Assets
to, between or among any one or more of the Series in such manner and on such
basis as the Trustees, in their sole discretion, deem fair and equitable, and
any General Assets so allocated to a particular Series shall be held with
respect to that Series. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all Series for all purposes. Separate and
distinct records shall be maintained for each Series and the assets held with
respect to each Series shall be held and accounted for separately from the
assets held with respect to all other Series and the General Assets of the Trust
not allocated to such Series.
-6-
<PAGE>
(b) Liabilities Held with Respect to a Particular Series. The assets of the
Trust held with respect to each particular Series shall be charged against the
liabilities of the Trust held with respect to that Series and all expenses,
costs, charges and reserves attributable to that Series. Any general liabilities
of the Trust which are not readily identifiable as being held with respect to
any particular Series shall be allocated and charged by the Trustees to and
among any one or more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. All liabilities,
expenses, costs, charges, and reserves so charged to a Series are herein
referred to as "liabilities held with respect to" that Series. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all Series for all purposes. All
liabilities held with respect to a particular Series shall be enforceable
against the assets held with respect to such Series only and not against the
assets of the Trust generally or against the assets held with respect to any
other Series. Notice of this contractual limitation on the liability of each
Series shall be set forth in the Certificate of Trust or in an amendment thereto
prior to the issuance of any Shares of a Series.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution, including, without
limitation, any distribution paid upon termination of the Trust or of any Series
(or Class) with respect to, nor any redemption or repurchase of, the Shares of
any Series (or Class) shall be effected by the Trust other than from the assets
held with respect to such Series, nor shall any Shareholder of any particular
Series otherwise have any right or claim against the assets held with respect to
any other Series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series. The Trustees shall have
full discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Equality. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets held with respect to that Series
(subject to the liabilities held with respect to that Series and such rights
and preferences as may have been established and designated with respect to
-7-
<PAGE>
Classes of Shares within such Series), and each Share of any particular
Series shall be equal to each other Share of that Series.
(e) Fractions. Any fractional Share of a Series shall carry proportionately
all the rights and obligations of a whole Share of that Series, including rights
with respect to voting, receipt of dividends and distributions, redemption of
Shares and termination of the Trust.
(f) Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.
(g) Combination of Series. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise required by
applicable law, to combine the assets and liabilities held with respect to any
two or more Series into assets and liabilities held with respect to a single
Series.
(h) Elimination of Series. At any time that there are no Shares outstanding
of any particular Series (or Class) previously established and designated, the
Trustees may by resolution of a majority of the then Trustees abolish that
Series (or Class) and rescind the establishment and designation thereof.
Section 7. Indemnification of Shareholders. If any Shareholder or former
Shareholder shall be exposed to liability by reason of a claim or demand
relating to such Person being or having been a Shareholder, and not because of
such Person's acts or omissions, the Shareholder or former Shareholder (or such
Person's heirs, executors, administrators, or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified out of the
assets of the Trust against all loss and expense arising from such claim or
demand, but only out of the assets held with respect to the particular Series of
Shares of which such Person is or was a Shareholder and from or in relation to
which such liability arose.
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of Trustees shall
initially be three, who shall be Marguerite E. H. Morrison, Deborah A. Docs
and Robert C. Rosselot. Hereafter, the number of
-8-
<PAGE>
Trustees shall at all times be at least one and no more than fifteen as
determined, from time to time, by the Trustees pursuant to Section 3 of this
Article IV. Each Trustee shall serve during the continued lifetime of the
Trust until he or she dies, resigns, is declared bankrupt or incompetent by a
court of appropriate jurisdiction, or is removed, or, if sooner, until the
next meeting of Shareholders called for the purpose of electing Trustees and
until the election and qualification of his or her successor. In the event
that less than the majority of the Trustees holding office have been elected
by the Shareholders, the Trustees then in office shall call a Shareholders'
meeting for the election of Trustees. Any Trustee may resign at any time by
written instrument signed by him and delivered to any officer of the Trust or
to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to
damages on account of such removal. The Shareholders may elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose. Any
Trustee may be removed at any meeting of Shareholders by a vote of two-thirds
of the outstanding Shares of the Trust.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
declination to serve, resignation, retirement, removal, or incapacity of one
or more Trustees, or all of them, shall not operate to annul the Trust or to
revoke any existing agency created pursuant to the terms of this Declaration
of Trust. Whenever there shall be fewer than the designated number of
Trustees, until additional Trustees are elected or appointed as provided
herein to bring the total number of Trustees equal to the designated number,
the Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration of Trust. As conclusive evidence of such
vacancy, a written instrument certifying the existence of such vacancy may be
executed by an officer of the Trust or by a majority of the Trustees. In the
event of the death, declination, resignation, retirement, removal, or
incapacity of all the then Trustees within a short period of time and without
the opportunity for at least one Trustee being able to appoint additional
Trustees to replace those no longer serving, the Trust's Investment
Manager(s) are empowered to appoint new Trustees subject to the provisions of
Section 16(a) of the 1940 Act.
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Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and the
Trustees shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of
all kinds on behalf of the Trust. Without limiting the foregoing, the
Trustees may: adopt By-Laws not inconsistent with this Declaration of Trust
providing for the regulation and management of the affairs of the Trust and
may amend and repeal them to the extent that such By-Laws do not reserve that
right to the Shareholders; enlarge or reduce their number; remove any Trustee
with or without cause at any time by written instrument signed by at least
two-thirds of the number of Trustees prior to such removal, specifying the
date when such removal shall become effective, and fill vacancies caused by
enlargement of their number or by the death, resignation or removal of a
Trustee; elect and remove, with or without cause, such officers and appoint
and terminate such agents as they consider appropriate; appoint from their
own number and establish and terminate one or more committees consisting of
two or more Trustees which may exercise the powers and authority of the Board
of Trustees to the extent that the Trustees determine; employ one or more
custodians of the assets of the Trust and authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities or with a Federal Reserve
Bank; retain a transfer agent or a shareholder servicing agent, or both;
provide for the issuance and distribution of Shares by the Trust directly or
through one or more Principal Underwriters or otherwise; redeem, repurchase
and transfer Shares pursuant to applicable law; set record dates for the
determination of Shareholders with respect to various matters; declare and
pay dividends and distributions to Shareholders of each Series from the
assets of such Series; and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the
Trustees and to any agent or employee of the Trust or to any such custodian,
transfer or Shareholder servicing agent, or Principal Underwriter. Any
determination as to what is in the interests of the Trust made by the
Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration of Trust, the presumption shall be in favor of a grant of
power to the Trustees. Unless otherwise specified herein or in the By-Laws or
required by law, any action by the Trustees shall be deemed effective if
approved or taken by a majority of
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the Trustees present at a meeting of Trustees at which a quorum of
Trustees is present, within or without the State of Delaware.
Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all Persons, including,
without limitation, states, territories, and possessions of the United States
and the District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to exercise any of
said rights, powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options (including, options on futures contracts) with respect to or
otherwise deal in any property rights relating to any or all of the assets of
the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or
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Persons as the Trustees shall deem proper, granting to such Person or Persons
such power and discretion with relation to securities or property as the
Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depository, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depository or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depository or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes and in connection therewith issue notes or other
evidence of indebtedness; and to mortgage and pledge the Trust Property or any
part thereof to secure any or all of such indebtedness;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust Property or any part thereof to secure any of or all of such obligations;
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(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding Shares, holding, being
or having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such Person as Trustee, officer, employee,
agent, investment adviser, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify such
Person against liability;
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;
(n) To operate as and carry out the business of an investment company,
and exercise all the powers necessary or appropriate to the conduct of such
operations;
(o) To enter into contracts of any kind and description;
(p) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Declaration or Trust or in the By-Laws;
(q) To interpret the investment policies, practices or limitations of
any Series or Class; and
(r) To invest part or all of the Trust Property (or part or all of the
assets of any Series), or to dispose of part or all of the Trust Property (or
part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act (including investment by means of transfer of part
or all of the Trust Property in exchange for an interest or interests in such
one or more investment companies) all without any
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requirement of approval by Shareholders unless required by the 1940 Act. Any
such other investment company may (but need not) be a trust (formed under the
laws of the State of Delaware or of any other state) which is classified as a
partnership for federal income tax purposes.
(s) Subject to the 1940 Act, to engage in any other lawful act or
activity in which a business trust organized under the Delaware Act may engage.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are authorized to
pay or cause to be paid out of the principal or income of the Trust, or partly
out of the principal and partly out of income, as they deem fair, all expenses,
fees, charges, taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including, but not limited
to, the Trustees compensation and such expenses and charges for the services of
the Trust's officers, employees, investment adviser or manager, Principal
Underwriter, auditors, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur, which
expenses, fees, charges, taxes and liabilities shall be allocated in accordance
with Article III, Section 6 hereof.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trust, except that
the Trustees shall have power to cause legal title to any
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Trust Property to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other Person as nominee,
on such terms as the Trustees may determine. The right, title and interest of
the Trustees in the Trust Property shall vest automatically in each Person
who may hereafter become a Trustee. Upon the resignation, removal or death of
a Trustee, he or she shall automatically cease to have any right, title or
interest in any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or
not conveyancing documents have been executed and delivered.
Section 7. Service Contracts
(a) Subject to such requirements and restrictions as may be set forth
under federal and/or state law and in the By-Laws, including, without
limitation, the requirements of Section 15 of the 1940 Act, the Trustees may, at
any time and from time to time, contract for exclusive or nonexclusive advisory,
management and/or administrative services for the Trust or for any Series (or
Class thereof) with any corporation, trust, association or other organization;
and any such contract may contain such other terms as the Trustees may
determine, including, without limitation, authority for the Investment Manager
or administrator to delegate certain or all of its duties under such contracts
to qualified investment advisers and administrators and to determine from time
to time without prior consultation with the Trustees what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be delegated to such
party.
(b) The Trustees may also, at any time and from time to time, contract
with any corporation, trust, association or other organization, appointing it
exclusive or nonexclusive distributor or Principal Underwriter for the Shares of
one or more of the Series (or Classes) or other securities to be issued by the
Trust. Every such contract shall comply with such requirements and restrictions
as may be set forth under federal and/or state law and in the By-Laws,
including, without limitation, the requirements of Section 15 of the 1940 Act;
and any such contract may contain such other terms as the Trustees may
determine.
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(c) The Trustees are also empowered, at any time and from time to
time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent and/or
Shareholder servicing agent for the Trust or one or more of its Series. Every
such contract shall comply with such requirements and restrictions as may be set
forth under federal and/or state law and in the By-Laws or stipulated by
resolution of the Trustees.
(d) Subject to applicable law, the Trustees are further empowered, at
any time and from time to time, to contract with any entity to provide such
other services to the Trust or one or more of the Series, as the Trustees
determine to be in the best interests of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, Manager,
adviser, Principal Underwriter, distributor, or affiliate or agent of or
for any corporation, trust, association, or other organization, or for any
parent or affiliate of any organization with which an advisory, management
or administration contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other type of service
contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or has
an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory, management or administration contract or principal
underwriter's or distributor's contract, or transfer, shareholder servicing
or other type of service contract may have been or may hereafter be made
also has an advisory, management or administration contract, or principal
underwriter's or distributor's contract, or transfer, shareholder servicing
or other service contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing
the same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to
the requirements of the 1940 Act.
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Section 8. Trustees and Officers as Shareholders. Any Trustee, officer or
agent of the Trust may acquire, own and dispose of Shares to the same extent as
if he were not a Trustee, officer or agent; and the Trustees may issue and sell
and cause to be issued and sold Shares to, and redeem such Shares from, any such
Person or any firm or company in which such Person is interested, subject only
to the general limitations contained herein or in the By-Laws relating to the
sale and redemption of such Shares.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers, Meetings, Notice and Record Dates. The
Shareholders shall have power to vote only (i) for the election or removal of
Trustees as provided in Article IV, Section 1, and (ii) with respect to such
additional matters relating to the Trust as may be required by applicable
law, this Declaration of Trust, the By-Laws or any registration of the Trust
with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. As determined by the Trustees
without the vote or consent of Shareholders (except as required by the 1940
Act), on any matter submitted to a vote of Shareholders, either (i) each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote or (ii) each dollar of Net Asset Value (number
of Shares owned times Net Asset Value per share of such Series or Class, as
applicable) shall be entitled to one vote on any matter on which such Shares
are entitled to vote and each fractional dollar amount shall be entitled to a
proportionate fractional vote. Without limiting the power of the Trustees
in any way to designate otherwise in accordance with the preceding sentence,
the Trustees hereby establish that each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote. Notwithstanding
any other provision of this Declaration of Trust, on any matter submitted to
a vote of the Shareholders, all Shares of the Trust then entitled to vote
shall be voted in aggregate, except (i) when required by the 1940 Act, Shares
shall be voted by individual Series; (ii) when the matter involves the
termination of a Series or any other action that the Trustees have determined
will affect only the interests of one or more Series, then only Shareholders
of such Series shall be entitled to vote thereon; and (iii) when the matter
involves any action that the Trustees have determined will affect only the
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interests of one or more Classes, then only the Shareholders of such Class or
Classes shall be entitled to vote thereon. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by
proxy. A proxy may be given in writing. The By-Laws may provide that proxies
may also, or may instead, be given by any electronic or telecommunications
device or in any other manner. Notwithstanding anything else contained herein
or in the By-Laws, in the event a proposal by anyone other than the officers
or Trustees of the Trust is submitted to a vote of the shareholders of one or
more Series or Classes thereof or of the Trust, or in the event of any proxy
contest or proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees of the Trust, Shares may be voted only in person or
by written proxy at a meeting. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or the By-Laws to be taken by the Shareholders.
Meetings of the Shareholders shall be called and notice thereof and record
dates therefor shall be given and set as provided in the By-Laws.
Section 2. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute a quorum
at a Shareholders' meeting. When any one or more Series (or Classes) is to
vote as a single Class separate from any other Shares, forty percent (40%) of
the Shares of each such Series (or Classes) entitled to vote shall constitute
a quorum at a Shareholders' meeting of that Series (or Class). Except when a
larger vote is required by any provision of this Declaration of Trust or the
By-Laws or by applicable law, when a quorum is present at any meeting, a
majority of the Shares voted shall decide any questions and a plurality of
the Shares voted shall elect a Trustee, provided that where any provision of
law or of this Declaration of Trust requires that the holders of any Series
shall vote as a Series (or that holders of a Class shall vote as a Class),
then a majority of the Shares of that Series (or Class) voted on the matter
(or a plurality with respect to the election of a Trustee) shall decide that
matter insofar as that Series (or Class) is concerned.
Section 3. Record Dates. For the purpose of determining the Shareholders of
any Series (or Class) who are entitled to receive payment of any dividend or of
any other distribution, the Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other
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payment, as the record date for determining the Shareholders of such Series
(or Class) having the right to receive such dividend or distribution. Without
fixing a record date, the Trustees may for distribution purposes close the
register or transfer books for one or more Series (or Classes) at any time
prior to the payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series (or Classes).
Section 4. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income, and
Distributions. Subject to applicable law and Article III, Section 6 hereof,
the Trustees, in their absolute discretion, may prescribe and shall set forth
in the By-Laws or in a duly adopted vote of the Trustees such bases and time
for determining the per Share or net asset value of the Shares of any Series
or net income attributable to the Shares of any Series, or the declaration
and payment of dividends and distributions on the Shares of any Series, as
they may deem necessary or desirable.
Section 2. Redemptions and Repurchases.
(a) The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a Person designated
by the Trust that the Trust purchase such Shares or in accordance with such
other procedures for redemption as the Trustees may from time to time
authorize; and the Trust will pay therefor the net asset value thereof as
determined by the Trustees (or on their behalf), in accordance with any
applicable provisions of the By-Laws and applicable law. Unless extraordinary
circumstances exist, payment for said Shares shall be made by the Trust to
the Shareholder within seven (7) days after the date on which the request is
made in proper form. The obligation set forth in this Section 2 is subject to
the provision that in the event that any time the New York Stock Exchange
(the "Exchange") is closed for other than weekends or holidays, or if
permitted by the rules and regulations or an order of the Commission during
periods when trading on the Exchange is restricted or during any emergency
which makes it impracticable for the
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Trust to dispose of the investments of the applicable Series or to determine
fairly the value of the net assets held with respect to such Series or during
any other period permitted by order of the Commission for the protection of
investors, such obligations may be suspended or postponed by the Trustees. In
the case of a suspension of the right of redemption as provided herein, a
Shareholder may either withdraw the request for redemption or receive payment
based on the net asset value per share next determined after the termination
of such suspension.
(b) The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other Person
in transferring securities selected for delivery as all or part of any payment
in kind.
(c) The Trustees may require Shareholders to redeem Shares for any reason
under terms set by the Trustees, including, but not limited to, (i) the
determination of the Trustees that direct or indirect ownership of Shares of
any Series has or may become concentrated in such Shareholder to an extent
that would disqualify any Series as a regulated investment company under the
Internal Revenue Code of 1986, as amended (or any successor statute thereto),
(ii) the failure of a Shareholder to supply a tax identification number if
required to do so, or to have the minimum investment required (which may vary
by Series), or (iii) the failure of a Shareholder to pay when due for the
purchase of Shares issued to him. Any such redemption shall be effected at
the redemption price and in the manner provided in this Article VI.
(d) The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the provisions of the Internal
Revenue Code of 1986, as amended (or any successor statute thereto), or to
comply with the requirements of any other taxing authority.
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ARTICLE VII
Compensation and Limitation of
Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability. A Trustee, when
acting in such capacity, shall not be personally liable to any Person, other
than the Trust or a Shareholder to the extent provided in this Article VII, for
any act, omission or obligation of the Trust, of such Trustee or of any other
Trustee. The Trustees shall not be responsible or liable in any event for any
neglect or wrongdoing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust. The Trust shall indemnify each Person who is, or has
been, a Trustee, officer, employee or agent of the Trust and any Person who is
serving or has served at the Trust's request as a director, officer, trustee,
employee or agent of another organization in which the Trust has any interest as
a shareholder, creditor or otherwise to the extent and in the manner provided in
the By-Laws.
All persons extending credit to, contracting with or having any claim
against the Trust or the Trustees shall look only to the assets of the
appropriate Series, or, if the Trustees have yet to establish Series, of the
Trust for payment under such credit, contract or claim; and neither the Trustees
nor the Shareholders, nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable therefor.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees by any of them in connection with the Trust shall
conclusively be deemed to have been executed or done only in or with respect to
his or their capacity as Trustee or Trustees, and such Trustee or Trustees shall
not be personally liable thereon. At the Trustees' discretion, any note, bond,
contract, instrument, certificate or undertaking made or issued by the Trustees
or by any officer or officers may give notice that the Certificate of Trust is
on file in the Office of the Secretary of State of the State of Delaware and
that a limitation on liability of Series exists
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and such note, bond, contract, instrument, certificate or undertaking may, if
the Trustees so determine, recite that the same was executed or made on
behalf of the Trust by a Trustee or Trustees in such capacity and not
individually or by an officer or officers in such capacity and not
individually and that the obligations of such instrument are not binding upon
any of them or the Shareholders individually but are binding only on the
assets and property of the Trust or a Series thereof, and may contain such
further recital as such Person or Persons may deem appropriate. The omission
of any such notice or recital shall in no way operate to bind any Trustees,
officers or Shareholders individually.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and to
any Shareholder solely for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice nor
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee or agent of the Trust in connection with
any claim, action, suit or proceeding in which he or she becomes involved by
virtue of his or her capacity or former capacity with the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
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Section 2. Termination of Trust or Series.
(a) Unless terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by vote of a
majority of the Shares of each Series entitled to vote, voting separately by
Series, or by the Trustees by written notice to the Shareholders. Any Series of
Shares or Class thereof may be terminated at any time by vote of a majority of
the Shares of such Series or Class entitled to vote or by the Trustees by
written notice to the Shareholders of such Series or Class.
(b) Upon the requisite Shareholder vote or action by the Trustees to
terminate the Trust or any one or more Series of Shares or any Class thereof,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular Series or any Class thereof as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets of the Trust or of the affected Series
or Class to distributable form in cash or Shares (if any Series remain) or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the Series or Classes involved, ratably according to the number
of Shares of such Series or Class held by the several Shareholders of such
Series or Class on the date of distribution. Thereupon, the Trust or any
affected Series or Class shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties relating thereto or
arising therefrom, and the right, title and interest of all parties with respect
to the Trust or such Series or Class shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
Section 3. Reorganization and Master/Feeder
(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into one or more trusts (or
series thereof to the extent permitted by law), partnerships, associations,
corporations or other business entities (including trusts, partnerships,
associations, corporations or other business entities created by the Trustees to
accomplish such merger or consolidation) so long as the surviving or resulting
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<PAGE>
entity is an open-end management investment company under the 1940 Act, or is a
series thereof, that will succeed to or assume the Trust's registration under
the 1940 Act and that is formed, organized or existing under the laws of the
United States or of a state, commonwealth, possession or colony of the United
States, (ii) cause the Shares to be exchanged under or pursuant to any state or
federal statute to the extent permitted by law or (iii) cause the Trust to
incorporate under the laws of Delaware. Any agreement of merger or consolidation
or exchange or certificate of merger may be signed by a majority of the Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
(b) Pursuant to and in accordance with the provisions of Section 3815(f) of
the Delaware Act, and notwithstanding anything to the contrary contained in this
Declaration of Trust, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 3 may effect any amendment to the
governing instrument of the Trust or effect the adoption of a new trust
instrument of the Trust if the Trust is the surviving or resulting trust in the
merger or consolidation.
(c) The Trustees may create one or more business trusts to which all or any
part of the assets, liabilities, profits or losses of the Trust or any Series or
class thereof may be transferred and may provide for the conversion of Shares in
the Trust or any Series or Class thereof into beneficial interests in any such
newly created trust or trusts or any series or classes thereof.
(d) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval, invest all or a portion of the Trust Property of any
Series, or dispose of all or a portion of the Trust Property of any Series, and
invest the proceeds of such disposition in interests issued by one or more other
investment companies registered under the 1940 Act. Any such other investment
company may (but need not) be a trust (formed under the laws of the State of
Delaware or any other state or jurisdiction) (or subtrust thereof) which is
classified as a partnership for federal income tax purposes. Notwithstanding
anything else herein, the Trustees may, without Shareholder approval unless such
approval is required by applicable law, cause a Series that is organized in the
master/feeder fund structure to withdraw or redeem its Trust Property from the
master fund and cause such series to invest its Trust Property directly in
securities and other financial instruments or in another master fund.
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<PAGE>
Section 4. Amendments. Except as specifically provided in this Section, the
Trustees may, without Shareholder vote, restate, amend or otherwise supplement
this Declaration of Trust. Shareholders shall have the right to vote (i) on any
amendment that would affect their right to vote granted in Article V, Section 1
hereof, (ii) on any amendment to this Section 4 of Article VIII, (iii) on any
amendment that may be required by applicable law or by the Trust's registration
statement filed with the Commission and (iv) on any amendment submitted to them
by the Trustees. Any amendment required or permitted to be submitted to the
Shareholders that, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by a vote of the Shareholders of each
Series affected and no vote of Shareholders of a Series not affected shall be
required. Notwithstanding anything else herein, no amendment hereof shall limit
the rights to insurance provided by Article VII, Section 4 with respect to any
acts or omissions of Persons covered thereby prior to such amendment nor shall
any such amendment limit the rights to indemnification referenced in Article
VII, Section 2 hereof as provided in the By-Laws with respect to any actions or
omissions of Persons covered thereby prior to such amendment. The Trustees may,
without Shareholder vote, restate, amend, or otherwise supplement the
Certificate of Trust as they deem necessary or desirable.
Section 5. Filing of Copies, References, Headings. The original or a copy
of this instrument and of each restatement and/or amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with
the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
restatements and/or amendments. In this instrument and in any such
restatements and/or amendments, references to this instrument, and all
expressions such as "herein", "hereof" and "hereunder", shall be deemed to
refer to this instrument as amended or affected by any such restatements
and/or amendments. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. Whenever the singular
number is used herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall
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<PAGE>
include each other, as applicable. This instrument may be executed in any
number of counterparts each of which shall be deemed an original.
Section 6. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust is to be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
(b) Notwithstanding the first sentence of Section 6(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees or this
Declaration of Trust (x) the provisions of Section 3540 of Title 12 of the
Delaware Code or (y) any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts that
relate to or regulate: (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and charges, (ii)
affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining a court or other
governmental approval concerning the acquisition, holding or disposition of
real or personal property, (iv) fees or other sums applicable to trustees,
officers, agents or employees of a trust, (v) the allocation of receipts and
expenditures to income or principal, (vi) restrictions or limitations on the
permissible nature, amount or concentration of trust investments or
requirements relating to the titling, storage or other manner of holding of
trust assets, or (vii) the establishment of fiduciary or other standards or
responsibilities or limitations on the acts or powers of trustees that are
inconsistent with the limitations or liabilities or authorities and powers of
the Trustees set forth or referenced in this Declaration of Trust.
Section 7. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such provision
is in conflict with the 1940 Act, the regulated
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<PAGE>
investment company provisions of the Internal Revenue Code of 1986, as
amended (or any successor statute thereto), and the regulations thereunder,
the Delaware Act or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of the
Declaration of Trust; provided, however, that such determination shall not
affect any of the remaining provisions of the Declaration of Trust or render
invalid or improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration of Trust shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration of Trust in any jurisdiction.
Section 8. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Act. It is not the intention of
the Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other than
a business trust pursuant to the Delaware Act. Nothing in this Declaration of
Trust shall be construed to make the Shareholders, either by themselves or with
the Trustees, partners or members of a joint stock association.
Section 9. Derivative Actions. In addition to the requirements set forth
in Section 3816 of the Delaware Act, a Shareholder may bring a derivative action
on behalf of the Trust only if the following conditions are met:
(a) The Shareholder or Shareholders must make a pre-suit demand upon the
Trustees to bring the subject action unless an effort to cause the Trustees to
bring such an action is not likely to succeed. For purposes of this Section
9(a), a demand on the Trustees shall only be deemed not likely to succeed and
therefore excused if a majority of the Board of Trustees, or a majority of any
committee established to consider the merits of such action, has a personal
financial interest in the transaction at issue, and a Trustee shall not be
deemed interested in a transaction or otherwise disqualified from ruling on the
merits of a Shareholder demand by virtue of the fact that such Trustee receives
remuneration for his service on
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<PAGE>
the Board of Trustees of the Trust or on the boards of one or more Trusts
that are under common management with or otherwise affiliated with the Trust.
(b) Unless a demand is not required under paragraph (a) of this Section 9,
Shareholders eligible to bring such derivative action under the Delaware Act who
hold at least 10% of the Outstanding Shares of the Trust, or 10% of the
Outstanding Shares of the Series or Class to which such action relates, shall
join in the request for the Trustees to commence such action; and
(c) Unless a demand is not required under paragraph (a) of this Section 9,
the Trustees must be afforded a reasonable amount of time to consider such
shareholder request and to investigate the basis of such claim. The Trustees
shall be entitled to retain counsel or other advisors in considering the merits
of the request and shall require an undertaking by the Shareholders making such
request to reimburse the Trust for the expense of any such advisors in the event
that the Trustees determine not to bring such action.
For purposes of this Section 9, the Board of Trustees may designate a
committee of one Trustee to consider a Shareholder demand if necessary to
create a committee with a majority of Trustees who do not have a personal
financial interest in the transaction at issue. The Trustees shall be
entitled to retain counsel or other advisors in considering the merits of the
request and shall require an undertaking by the Shareholders making such
request to reimburse the Trust for the expense of any such advisors in the
event that the Trustees determine not to bring such action.
[The remainder of this page has been
left blank intentionally.]
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<PAGE>
IN WITNESS WHEREOF, the Trustees named below does hereby make and enter
into this Declaration of Trust as of the 17th day of September, 1998.
/s/ Marguerite E. H. Morrison
- ---------------------------------------
Marguerite E. H. Morrison
/s/ Deborah A. Docs
- ---------------------------------------
Deborah A. Docs
/s/ Robert C. Rosselot
- ---------------------------------------
Robert C. Rosselot
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS:
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
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<PAGE>
CERTIFICATE OF TRUST
This Certificate of Trust of Prudential Tax-Managed Equity Fund (the
"Trust"), dated September 17, 1998, is being duly executed and filed to form a
business trust under the Delaware Business Trust Act (12 DEL C. Sections 3801 ET
SEQ.).
1. NAME. The name of the business trust formed hereby is Prudential
Tax-Managed Equity Fund.
2. REGISTERED AGENT. The business address of the registered office of the
Trust in the State of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The name of the Trust's
registered agent at such address is The Corporation Trust Company.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon the
date and time of filing.
4. SERIES TRUST. Notice is hereby given that pursuant to Section 3804 of
the Delaware Business Trust Act, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of such
series only and not against the assets of the Trust generally. The Trust is, or
will become prior to or within 180 days following the first issuance of
beneficial interests therein, a registered investment company under the
Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written.
/s/ Marguerite E. H. Morrison
-----------------------------------
Name: Marguerite E. H. Morrison
as Trustee and not individually
/s/ Robert C. Rosselot
-----------------------------------
Name: Robert C. Rosselot
as Trustee and not individually
/s/ Deborah A. Docs
-----------------------------------
Name: Deborah A. Docs
as Trustee and not individually
<PAGE>
BY-LAWS
OF
PRUDENTIAL TAX-MANAGED EQUITY FUND
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - AGREEMENT AND DECLARATION OF TRUST. . . . . . . . . . . . . . 1
Section 1. Agreement and Declaration
of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Principal Office. . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Registered Office and Other Office. . . . . . . . . . . . . 1
ARTICLE III - SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . 2
Section 3. Record Date for Meetings. . . . . . . . . . . . . . . . . . 2
Section 4. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. Inspection of Books . . . . . . . . . . . . . . . . . . . . 3
Section 6. Action without Meeting. . . . . . . . . . . . . . . . . . . 3
Section 7. Application of this Article . . . . . . . . . . . . . . . . 4
ARTICLE IV - TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1. Meetings of the Trustees. . . . . . . . . . . . . . . . . . 4
Section 2. Quorum and Manner of Acting . . . . . . . . . . . . . . . . 5
ARTICLE V - COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1. Executive and Other Committees. . . . . . . . . . . . . . . 5
Section 2. Meetings, Quorum and Manner of Acting . . . . . . . . . . . 5
ARTICLE VI - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. General Provisions. . . . . . . . . . . . . . . . . . . . . 6
Section 2. Term of Office and Qualifications . . . . . . . . . . . . . 6
Section 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4. Powers and Duties of the Chairman . . . . . . . . . . . . . 6
Section 5. Powers and Duties of the President. . . . . . . . . . . . . 7
Section 6. Powers and Duties of the Vice
President . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7. Powers and Duties of the Treasurer. . . . . . . . . . . . . 7
Section 8. Powers and Duties of the Secretary. . . . . . . . . . . . . 8
Section 9. Powers and Duties of Assistant
Treasurers. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 10. Powers and Duties of Assistant
Secretaries . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 11. Compensation of Officers and
Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VII - FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . 8
(i)
<PAGE>
ARTICLE VIII - SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX - WAIVERS OF NOTICE. . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE X - CUSTODY OF SECURITIES . . . . . . . . . . . . . . . . . . . . 9
Section 1. Employment of a Custodian . . . . . . . . . . . . . . . . . 9
Section 2. Action upon Termination of Custodian Agreement. . . . . . . 9
Section 3. Provisions of Custodian Contract. . . . . . . . . . . . . . 10
Section 4. Central Certificate System. . . . . . . . . . . . . . . . . 10
ARTICLE XI - INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND OTHER
AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. Agents, Proceedings, Expenses . . . . . . . . . . . . . . . 11
Section 2. Indemnification . . . . . . . . . . . . . . . . . . . . . . 11
Section 3. Limitations, Settlements. . . . . . . . . . . . . . . . . . 11
Section 4. Insurance, Rights Not
Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5. Advance of Expenses . . . . . . . . . . . . . . . . . . . . 12
Section 6. Fiduciaries of Employee
Benefit Plan. . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XII - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 13
(ii)
<PAGE>
BY-LAWS
OF
PRUDENTIAL TAX-MANAGED EQUITY FUND
ARTICLE I
Agreement and Declaration of Trust
Section 1. Agreement and Declaration of Trust. These By-Laws
shall be subject to the Agreement and Declaration of Trust, as from time to
time amended, supplemented or restated (the "Declaration of Trust") of
Prudential Tax-Managed Equity Fund (the "Trust").
Section 2. Definitions. Unless otherwise defined herein, the terms used
herein have the respective meanings given them in the Declaration of Trust.
ARTICLE II
Offices
Section 1. Principal Office. The principal office of the Trust shall be
located in the City of Newark, State of New Jersey, or such other location as
the Trustees may from time to time determine.
Section 2. Registered Office and Other Offices. The registered office of
the Trust shall be located in the City of Wilmington, State of Delaware or such
other location within the State of Delaware as the Trustees may from time to
time determine. The Trust may establish and maintain such other offices and
places of business as the Trustees may from time to time determine.
ARTICLE III
Shareholders
Section 1. Meetings. Meetings of the Shareholders shall be held at the
principal executive offices of the Trust or at such other place within the
United States of America as the Trustees shall designate. Meetings of the
Shareholders shall be called by the Secretary whenever (i) ordered by the
Trustees or (ii) for the purpose of voting on the removal of any Trustee,
requested in writing by Shareholders holding at least ten percent (10%) of the
outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than 10 days to call such meetings, the
Trustees or the
<PAGE>
Shareholders so requesting, may, in the name of the Secretary, call the meeting
by giving notice thereof in the manner required when notice is given by the
Secretary.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Secretary by delivering or mailing, postage prepaid, to each Shareholder at his
or her address as recorded on the register of the Trust at least (10) days and
not more than ninety (90) days before the meeting. Only the business stated in
the notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need be given
to any Shareholder who shall have failed to inform the Trust of his or her
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder or his or her attorney thereunto authorized, is filed
with the records of the meeting.
Section 3. Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than ninety (90) days
prior to the date of any meeting of Shareholders as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken;
provided, however, that notwithstanding any other provision of this Section 4 to
the contrary, the Trustees may at any time adopt one or more electronic,
telecommunication or other alternatives to execution of a written instrument
that will enable holders of Shares entitled to vote at any meeting to appoint a
proxy to vote such holders' Shares at such meeting. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of
2
<PAGE>
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or the legal
control of any other person as regards the charge or management of such Share,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting. Except as otherwise provided herein or in the Declaration of Trust, all
matters relating to the giving, voting or validity of proxies shall be governed
by the General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
Section 5. Inspection of Books. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
Shareholders.
Section 6. Action without Meeting. Any action that may be taken at any
meeting of Shareholders may be taken without a meeting and without prior notice
if a consent in writing setting forth the action so taken is signed by the
holders of outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all Shares entitled to vote on that action were present and voted. All such
consents shall be filed with the records of Shareholder meetings. Such consents
shall be treated for all purposes as a vote taken at a meeting of Shareholders.
3
<PAGE>
Section 7. Application of this Article. Meetings of Shareholders shall
consist of Shareholders of any Series (or Class thereof) or of all Shareholders,
as determined pursuant to the Declaration of Trust, and this Article shall be
construed accordingly.
ARTICLE IV
Trustees
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman, the President,
or by any two of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustees calling
the meeting and shall be delivered or mailed, postage prepaid, to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or wired
to each Trustee at his or her business address, or personally delivered to him
or her, at least one day before the meeting. Such notice may, however, be waived
by any Trustees. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before the meeting, is filed
with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. A notice or waiver of notice need not specify the purpose of any
meeting. The Trustees may meet by means of a telephone conference circuit or
similar communications equipment by means of which all persons participating in
the meeting are connected, which meeting shall be deemed to have been held at a
place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if a majority of the Trustees then in
office (or such higher number of Trustees as would be required to act on the
matter under the Declaration of Trust, these By-Laws or applicable law if a
meeting were held) consent to the action in writing and the written consents are
filed with the records of the Trustees' meetings. Such consents shall be treated
for all purposes as a vote taken at a meeting of the
4
<PAGE>
Trustees. Notwithstanding the foregoing, all actions of the Trustees shall be
taken in compliance with the provisions of the Investment Company Act of 1940,
as amended.
Section 2. Quorum and Manner of Acting. A majority of the Trustees then in
office shall constitute a quorum for the transaction of business. If at any
meeting of the Trustees there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum shall be
obtained. Notice of an adjourned meeting need not be given. The act of the
majority of the Trustees present of any meeting at which there is a quorum shall
be the act of the Trustees, except as may be otherwise specifically provided by
law or by the Declaration of Trust or by these By-Laws.
ARTICLE V
Committees
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers by law, the Declaration of Trust or these By-laws they are prohibited
from delegating. The Trustees may also elect from their own number or otherwise
other Committees from time to time, the number composing such Committees, the
powers conferred upon the same (subject to the same limitations as with respect
to the Executive Committee) and the terms of membership on such Committees to be
determined by the Trustees. The Trustees may designate a chairman of any such
Committee. In the absence of such designation the Committee may elect its own
chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for a special meeting of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the numbers
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the
5
<PAGE>
requisite number of members of a Committee without a meeting, and (5) authorize
the members of a Committee to meet by means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept at the principal executive offices of the
Trust.
ARTICLE VI
Officers
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including a Chairman of the Board ("Chairman"), one or
more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration of Trust or these By-Laws, the President, the Treasurer
and the Secretary, and all other officers shall hold office at the pleasure of
the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall hold no other office, but
may be a Trustee of the Trust. Except as above provided, any two offices may be
held by the same person. The Chairman, if there be one, shall be a Trustee and
may but need not be a Shareholder. Any other officer may be but none need be a
Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the Chairman. The Chairman, if such an
officer is elected, shall if present preside at meetings of the Shareholders and
the Trustees, shall be the chief executive officer of the Trust and shall,
subject to the control of the Trustees, have general supervision, direction and
control of the business and the officers of the Trust and exercise and perform
such other powers and duties as may
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be from time to time assigned to him by the Trustees or prescribed by the
Declaration of Trust or these By-Laws.
Section 5. Powers and Duties of the President. Subject to the powers of the
Chairman, if there be such an officer, the President shall be the principal
executive officer of the Trust. He or she may call meetings of the Trustees and
of any Committee thereof when he or she deems it necessary and, in the absence
of the Chairman, shall preside at all meetings of the Shareholders and the
Trustees. Subject to the control of the Trustees, the Chairman and any
Committees of the Trustees, within their respective spheres, as provided by the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he or she may find necessary to
transact the business of the Trust. He or she shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such powers and duties as from
time to time may be conferred upon or assigned to him or her by the Trustees.
Section 6. Powers and Duties of the Vice President. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him or her from time to time by the Trustees or the
President.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these By-Laws. He
or she shall render a statement of condition of the finances of the Trust to the
Trustee as often as they shall require the same and he or she shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the Trustees. The
Treasurer shall give a bond for the faithful discharge of his or her duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
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Section 8. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he or she shall have custody of the seal of the
Trust; he or she shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer Agent. The Secretary
shall attend to the giving and serving of all notices by the Trust in accordance
with the provisions of these By-laws and as required by law; and subject to
these By-Laws, he or she shall in general perform all duties incident to the
office of the Secretary and such other duties as from time to time may be
assigned to him or her by the Trustees.
Section 9. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall give a bond for the faithful discharge
of his or her duties, if required so to do by the Trustees, in such sum and with
such surety or sureties as the Trustees shall require.
Section 10. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him or her by the Trustees.
Section 11. Compensation of Officers and Trustees. Subject to any
applicable provisions of the Declaration of Trust, the compensation of the
officers and Trustees shall be fixed from time to time by the Trustees or, in
the case of officers, by any Committee or officer upon whom such power may be
conferred by the Trustees. No officer shall be prevented from receiving such
compensation as such officer by reason of the fact that he or she is also a
Trustee.
ARTICLE VII
Fiscal Year
The fiscal year of the Trust shall end on such date as the Trustees shall
from time to time determine.
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ARTICLE VIII
Seal
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
Waivers of Notice
Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been telegraphed, cabled or wired for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wire company
with instructions that it be telegraphed, cabled or wired.
ARTICLE X
Custody of Securities
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having not
less than $20,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action upon Termination of Custodian Agreement. Upon termination
of a Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor custodian, but in the event that no
successor custodian can be found who has the required qualifications and is
willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trust shall function
without a custodian or shall be liquidated. If so directed by a vote of holders
of the majority of the outstanding Shares entitled to vote, the Custodian shall
deliver and pay over all Trust Property held by it as specified in such vote.
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Section 3. Provisions of Custodian Contract. The following provisions shall
apply to the employment of a Custodian and to any contract entered into with the
Custodian so employed: The Trustees shall cause to be delivered to the Custodian
all securities included in the Trust Property or to which the Trust may become
entitled, and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio securities
to another person, or other disposition thereof, all as the Trustees may
generally or from time to time require or approve or to a successor Custodian;
and the Trustees shall cause all funds included in the Trust Property or to
which it may become entitled to be paid to the Custodian, and shall order the
same disbursed only for investment against delivery of the securities acquired
(including securities acquired under a repurchase agreement), or the return of
cash held as collateral for loans of portfolio securities, or in payment of
expenses, including management compensation, and liabilities of the Trust,
including distributions to Shareholders, or to a successor Custodian.
Notwithstanding anything to the contrary to these By-Laws, upon receipt of
proper instructions, which may be standing instructions, the Custodian may
deliver funds in the following cases: In connection with repurchase agreements,
the Custodian shall transmit prior to receipt on behalf of the Fund of any
securities or other property, funds from the Fund's custodian account to a
special custodian approved by the Trustees of the Fund, which funds shall be
used to pay for securities to be purchased by the Fund subject to the Fund's
obligation to sell and the seller's obligation to repurchase such securities (in
such case, the securities shall be held in the custody of the special
custodian); in connection with the Trust's purchase or sale of financial
futures contracts, the Custodian shall transmit, prior to receipt on behalf of
the Fund of any securities or other property, funds from the Trust's custodian
account in order to furnish and to maintain funds with brokers as margin to
guarantee the performance of the Trust's futures obligations in accordance with
the applicable requirements of commodities exchanges and brokers.
Section 4. Central Certificate System. Subject to applicable rules,
regulations and orders adopted by the Commission, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in
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accordance with the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.
ARTICLE XI
Indemnification of Trustees, Officers,
Employees and Other Agents
Section 1. Agents, Proceedings, Expenses. For the purpose of this Article,
"agent" means any Person who is or was a Trustee, officer, employee or other
agent of the Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise; "proceeding"
means any threatened, pending or completed claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (including appeals);
and "expenses" includes, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and all other liabilities
whatsoever.
Section 2. Indemnification. Subject to the exceptions and limitation
contained in Section 3 below, every agent shall be indemnified by the Trust to
the fullest extent permitted by law against all liabilities and against all
expenses reasonably incurred or paid by him or her in connection with any
proceeding in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been an agent.
Section 3. Limitations, Settlements. No indemnification shall be provided
hereunder to an agent:
(a) who shall have been adjudicated by the court or other body before which
the proceeding was brought to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office (collectively,
"disabling conduct"); or
(b) with respect to any proceeding disposed of (whether by settlement,
pursuant to a consent decree or otherwise) without an adjudication by the court
or other body before which the proceeding was
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brought that such agent was liable to the Trust or its Shareholders by reason of
disabling conduct, unless there has been a determination that such agent did not
engage in disabling conduct:
(i) by the court or other body before which the proceeding was brought;
(ii) by at least a majority of those Trustees who are neither Interested
Persons of the Trust nor are parties to the proceeding based upon a review of
readily available facts (as opposed to a full trial-type inquiry); or
(iii) by written opinion of independent legal counsel based upon a review
of readily available facts (as opposed to a full trial-type inquiry); provided,
however, that indemnification shall be provided hereunder to an agent with
respect to any proceeding in the event of (1) a final decision on the merits by
the court or other body before which the proceeding was brought that the agent
was not liable by reason of disabling conduct, or (2) the dismissal of the
proceeding by the court or other body before which it was brought for
insufficiency of evidence of any disabling conduct with which such agent has
been charged.
Section 4. Insurance, Rights Not Exclusive. The rights of indemnification
herein provided may be insured against by policies maintained by the Trust on
behalf of any agent, shall be severable, shall not be exclusive of or affect any
other rights to which any agent may now or hereafter be entitled and shall inure
to the benefit of the heirs, executors and administrators of any agent.
Section 5. Advance of Expenses. Expenses incurred by an agent in connection
with the preparation and presentation of a defense to any proceeding may be paid
by the Trust from time to time prior to final disposition thereof upon receipt
of an undertaking by or on behalf of such agent that such amount will be paid
over by him or her to the Trust if it is ultimately determined that he or she is
not entitled to indemnification under this Article XI; provided, however, that
(a) such agent shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance payments
or (c) either a majority of the Trustees who are neither Interested Persons of
the Trust nor parties to the proceedings, or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily available
facts (as opposed to a trial-type inquiry or full investigation), that there is
reason to believe that such agent will be found entitled to indemnification
under this Article XI.
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Section 6. Fiduciaries of Employee Benefit Plan. The Article does not apply
to any proceeding against any Trustee, investment manager or other fiduciary of
an employee benefit plan in that person's capacity as such, even though that
person may also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right to
indemnification to which such Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE XII
Amendments
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by (a) a vote of holders of the majority of the
outstanding Shares entitled to vote or (b) by the Trustees, provided, however,
that no By-law may be amended, adopted or repealed by the Trustees if such
amendment, adoption or repeal is required by applicable law, the Declaration of
Trust or these By-Laws, to be submitted to a vote of the Shareholders.
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Exhibit (c)
The following provisions of the Declaration of Trust and By-Laws of
Prudential Tax-Managed Equity Fund, constitute all instruments defining the
rights of holders of the securities proposed to be offered:
I. Relevant Provisions of Declaration of Trust:
Article III Shares
Article IV The Board of Trustees
Article V Shareholders' Voting Powers and
Meetings
Article VIII, Section 2 Termination of Trust or Series
Article VIII, Section 4 Amendments
Article VIII, Section 9 Derivative Actions
II. Relevant Provisions of By-Laws:
Article III Shareholders
Article XII Amendments
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Exhibit (d)(1)
PRUDENTIAL TAX-MANAGED EQUITY FUND
MANAGEMENT AGREEMENT
Agreement made this ___ day of _______________, 19__, between Prudential
Tax-Managed Equity Fund, a Delaware business trust (the Trust), and Prudential
Investments Fund Management LLC, a New York limited liability company (the
Manager).
W I T N E S S E T H
WHEREAS, the Trust is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
1940 Act); and
WHEREAS, the Trust desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the Trust and
the Trust also desires to avail itself of the facilities available to the
Manager with respect to the administration of its day to day business
affairs, and the Manager is willing to render such investment advisory and
administrative services;
NOW, THEREFORE, the parties agree as follows:
1. The Trust hereby appoints the Manager to act as manager of the Trust
and administrator of its business affairs for the period and on the terms set
forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein provided.
The Manager is authorized to enter into a subadvisory agreement with The
Prudential Investment Corporation (PIC or the Subadviser) pursuant to which
PIC shall furnish to the Trust the investment advisory services in connection
with the management of the Trust (the Subadvisory Agreement). The Manager
will continue
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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 Trust,
the Manager shall administer the Trust's business affairs and, in connection
therewith, shall furnish the Trust with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of the Trust and the composition of the Trust's portfolio,
including the purchase, retention and disposition thereof, in accordance with
the Trust's investment objectives, policies and restrictions as stated in the
Prospectus (hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Trust's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Trust, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Declaration of Trust
and By-Laws of the Trust and the Prospectus (hereinafter defined) of the
Trust and with the instructions and directions of the Board of Trustees of
the Trust and will conform to and comply with the requirements of the 1940
Act and all other applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be
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purchased or sold by the Trust and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential Securities
Incorporated) in conformity with the policy with respect to brokerage as
set forth in the Trust's Registration Statement and the Trust's Prospectus
(hereinafter defined) or as the Board of Trustees may direct from time to
time. In providing the Trust with investment supervision, it is recognized
that the Manager will give primary consideration to securing the most
favorable price and efficient execution. Consistent with this policy, the
Manager may consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such transaction
or other transactions to which other clients of the Manager may be a party.
It is understood that Prudential Securities Incorporated may be used as
principal broker for securities transactions but that no formula has been
adopted for allocation of the Trust's investment transaction business.
It is also understood that it is desirable for the Trust that the Manager
have access to supplemental investment and market research and security
and economic analysis provided by brokers or futures commission merchants
and that such brokers may execute brokerage transactions at a higher cost
to the Trust than may result when allocating brokerage to other brokers
or futures commission merchants on the basis of seeking the most favorable
price and efficient execution. Therefore, the Manager is authorized to pay
higher brokerage
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commissions for the purchase and sale of securities and futures contracts
for the Trust to brokers or futures commission merchants who provide such
research and analysis, subject to review by the Trust's Board of Trustees
from time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such broker or
futures commission merchant may be useful to the Manager in connection with
its services to other clients.
On occasions when the Manager deems the purchase or sale of a security
or a futures contract to be in the best interest of the Trust as well as
other clients of the Manager or the Subadviser, the Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts to be so sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities or futures contracts so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Trust and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the Trust's portfolio transactions and shall render to the Trust's Board of
Trustees such periodic and special reports as the Board may reasonably
request.
(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Trust (including those being maintained
by the Trust's Custodian).
(f) The Manager shall provide to the Trust's Custodian on each
business
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day information relating to all transactions concerning the Trust's assets.
(g) The investment management services of the Manager to the Trust
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
3. The Trust has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Agreement and Declaration of Trust, as registered pursuant to a
Certificate of Business Trust filed with the Secretary of State of Delaware
(such a Declaration of Trust, as in effect on the date hereof and as
amended from time to time, is herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date
hereof and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Trustees of the Trust
authorizing the appointment of the Manager and approving the form of this
agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the Registration Statement), as filed
with the Securities and Exchange Commission (the Commission) relating to
the Trust and its shares of beneficial interest and all amendments thereto;
(e) Notification of Registration of the Trust under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Trust (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to
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time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its officers and
employees who may be elected as trustees or officers of the Trust to serve in
the capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
officers or employees of the Manager.
5. The Manager shall keep the Trust's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Trust are the property of the Trust and it
will surrender promptly to the Trust any such records upon the Trust's request,
provided however that the Manager may retain a copy of such records. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be maintained by the
Manager pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the
following expenses:
(i) the salaries and expenses of all personnel of the Trust and the
Manager except the fees and expenses of trustees who are not affiliated
persons of the Manager or the Trust's investment adviser,
(ii) all expenses incurred by the Manager or by the Trust in
connection with managing the ordinary course of the Trust's business other
than those assumed by the Trust herein, and
(iii) the costs and expenses payable to PIC pursuant to the Subadvisory
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Agreement.
The Trust assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Trust in connection with
the management of the investment and reinvestment of the Trust's assets,
(b) the fees and expenses of trustees who are not affiliated persons
of the Manager or the Trust's investment advisers,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Trust and
the providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Trust pursuant to Section 31 of the 1940 Act and the rules promulgated
thereunder, (iii) the pricing of the shares of the Trust, including the
cost of any pricing service or services which may be retained pursuant to
the authorization of the Board of Trustees of the Trust, and (iv) for both
mail and wire orders, the cashiering function in connection with the
issuance and redemption of the Trust's securities,
(d) the fees and expenses of the Trust's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Trust,
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(f) brokers' commissions and any issue or transfer taxes chargeable
to the Trust in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Trust to federal,
state or other governmental agencies,
(h) the fees of any trade associations of which the Trust may be a
member,
(i) the cost of share certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of the Trust,
(j) the cost of fidelity, trustees and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Trust and of its shares with the Securities and
Exchange Commission, registering the Trust as a broker or dealer and paying
notice filing fees under state securities laws, including the preparation
and printing of the Trust's registration statements and the Trust's
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
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expenses not incurred in the ordinary course of the Trust's business, and
(n) any expenses assumed by the Trust pursuant to a Plan of Distribution
adopted in conformity with Rule 12b-1 under the 1940 Act.
7. For the services provided and the expenses assumed pursuant to this
Agreement, the Trust will pay to the Manager as full compensation therefor a
fee at an annual rate of .65 of 1% of the Trust's average daily net assets.
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 the Trust in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
9. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Trust at any
time, without the payment of any penalty, by the Board of Trustees of the Trust
or by vote of a majority of the
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outstanding voting securities (as defined in the 1940 Act) of the Trust, or by
the Manager at any time, without the payment of any penalty, on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall terminate automatically in the event of its assignment (as defined in the
1940 Act).
10. Nothing in this Agreement shall limit or restrict the right of
any officer or employee of the Manager who may also be a trustee, officer or
employee of the Trust to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
11. Except as otherwise provided herein or authorized by the Board of
Trustees of the Trust from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority
to act for or represent the Trust in any way or otherwise be deemed an agent
of the Trust.
12. During the term of this Agreement, the Trust agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Trust or the public, which refer in any
way to the Manager, prior to use thereof and not to use such material if the
Manager reasonably objects in writing within five business days (or such
other time as may be mutually agreed) after receipt thereof. In the event of
termination of this Agreement, the Trust will continue to furnish
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to the Manager copies of any of the above mentioned materials which refer in
any way to the Manager. Sales literature may be furnished to the Manager
hereunder by first-class or overnight mail, facsimile transmission equipment
or hand delivery. The Trust shall furnish or otherwise make available to the
Manager such other information relating to the business affairs of the Trust
as the Manager at any time, or from time to time, reasonably requests in
order to discharge its obligations hereunder.
13. This Agreement may be amended by mutual consent, but the consent
of the Trust must be obtained in conformity with the requirements of the 1940
Act.
14. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at Gateway Center Three,
100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary; or (2) to the
Trust at Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102-4077,
Attention: President.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. The Trust may use the name "Prudential Tax-Managed Equity Fund" or
any name including the word "Prudential" only for so long as this Agreement
or any extension, renewal or amendment hereof remains in effect, including
any similar agreement with any organization which shall have succeeded to the
Manager's business as Manager or any extension, renewal or amendment thereof
remain in effect. At such time as such an agreement shall no longer be in
effect, the Trust will (to the extent that it lawfully can) cease to use such
a name or any other name indicating that
11
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it is advised by, managed by or otherwise connected with the Manager, or any
organization which shall have so succeeded to such businesses. In no event
shall the Trust use the name "Prudential Tax-Managed Equity Fund" or any name
including the word "Prudential" if the Manager's function is transferred or
assigned to a company of which The Prudential Insurance Company of America
does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL TAX-MANAGED EQUITY FUND
By:
-------------------------
Brian Storms
President
PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC
By:
-------------------------
Executive Vice President
12
<PAGE>
Exhibit (d)(2)
PRUDENTIAL TAX-MANAGED EQUITY FUND
SUBADVISORY AGREEMENT
Agreement made as of this _____ day of________, 19___ 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
_________, 19____(the Management Agreement), with Prudential Tax-Managed
Equity Fund (the Trust), 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 the Trust.
WHEREAS, PIFM desires to retain the Subadviser to provide investment
advisory services to the Trust in connection with the management of the
portfolio of the Trust and the Subadviser is willing to render such
investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Trustees of the Trust, the Subadviser shall manage the investment
operations of the portfolio of the Trust and the composition of the Trust's
portfolio, including the purchase, retention and disposition thereof, in
accordance with the Trust's investment objectives, policies and restrictions
as stated in the Prospectus (such Prospectus and Statement of Additional
Information as currently in effect and as amended or supplemented from time
to time, being herein called the "Prospectus"), and subject to the following
understandings:
(i) The Subadviser shall provide supervision of the Trust's
investments and determine from time to time what investments and securities
will be purchased, retained, sold or loaned by the Trust, and what portion
of the assets will be invested or held uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Declaration of
Trust, By-Laws and Prospectus of the Trust and with the instructions and
directions of the Manager and of the Board of Trustees of the Trust and
will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986 and all other applicable federal and state
laws and regulations.
<PAGE>
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Trust and will place orders with
or through such persons, brokers, dealers or futures commission merchants
(including but not limited to Prudential Securities Incorporated) to
carry out the policy with respect to brokerage as set forth in the
Trust's Registration Statement and Prospectus or as the Board of Trustees
may direct from time to time. In providing the Trust with investment
supervision, it is recognized that the Subadviser will give primary
consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Subadviser may
consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such transaction
or other transactions to which the Subadviser's other clients may be a
party. It is understood that Prudential Securities Incorporated may be
used as principal broker for securities transactions but that no formula
has been adopted for allocation of the Trust's investment transaction
business. It is also understood that it is desirable for the Trust that
the Subadviser have access to supplemental investment and market research
and security and economic analysis provided by brokers or futures
commission merchants who may execute brokerage transactions at a higher
cost to the Trust than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the Subadviser is authorized to place orders for
the purchase and sale of securities and futures contracts for the Trust
with such brokers or futures commission merchants, subject to review by
the Trust's Board of Trustees from time to time with respect to the
extent and continuation of this practice. It is understood that the
services provided by such brokers or futures commission merchants may be
useful to the Subadviser in connection with the Subadviser's services to
other clients.
On occasions when the Subadviser deems the purchase or sale of
a security or futures contract to be in the best interest of the Trust as
well as other clients of the Subadviser, the Subadviser, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities or futures contracts so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and consistent
with its fiduciary obligations to the Trust and to such other clients.
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(iv) The Subadviser shall maintain all books and records with
respect to the Trust's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f)
of Rule 31a-1 under the 1940 Act and shall render to the Trust's Board
of Trustees such periodic and special reports as the Trustees may
reasonably request.
(v) The Subadviser shall provide the Trust's Custodian on each
business day with information relating to all transactions
concerning the Trust's assets and shall provide the Manager with such
information upon request of the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as trustees or officers of the
Trust to serve in the capacities in which they are elected. Services to be
furnished by the Subadviser under this Agreement may be furnished through
the medium of any of such directors, officers or employees.
(c) The Subadviser shall keep the Trust's books and records required to be
maintained by the Subadviser pursuant to paragraph 1(a) hereof and shall
timely furnish to the Manager all information relating to the Subadviser's
services hereunder needed by the Manager to keep the other books and
records of the Trust required by Rule 31a-1 under the 1940 Act. The
Subadviser agrees that all records which it maintains for the Trust are the
property of the Trust and the Subadviser will surrender promptly to the
Trust any of such records upon the Trust's request, provided however that
the Subadviser may retain a copy of such records. The Subadviser further
agrees to preserve for the periods prescribed by Rule 31a-2 of the
Commission under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all services to
be provided to the Trust pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
3. 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.
3
<PAGE>
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Trust or the Manager in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Subadviser's part
in the performance of its duties or from its reckless disregard of its
obligations and duties under this Agreement.
5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940
Act; provided, however, that this Agreement may be terminated by the Trust
at any time, without the payment of any penalty, by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Trust, or by the Manager or the
Subadviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other party.
This Agreement shall terminate automatically in the event of its assignment
(as defined in the 1940 Act) or upon the termination of the Management
Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees who may also be a
trustee, officer or employee of the Trust to engage in any other business
or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or a dissimilar nature,
nor limit or restrict the Subadviser's right to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other material prepared for
distribution to shareholders of the Trust or the public, which refer to the
Subadviser in any way, prior to use thereof and not to use material if the
Subadviser reasonably objects in writing five business days (or such other
time as may be mutually agreed) after receipt thereof. Sales literature
may be furnished to the Subadviser hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery.
8. This Agreement may be amended by mutual consent, but the consent of
the Trust must be obtained in conformity with the requirements of the 1940
Act.
9. This Agreement shall be governed by the laws of the State of New York.
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC
BY:
------------------------------------
Executive Vice President
THE PRUDENTIAL INVESTMENT CORPORATION
BY:
------------------------------------
Senior Vice President
5
<PAGE>
PRUDENTIAL TAX-MANAGED EQUITY FUND
DISTRIBUTION AGREEMENT
Agreement made as of _______, 199_, between Prudential Tax-Managed
Equity Fund (the Fund) and Prudential Investment Management Services LLC, a
Delaware limited liability company (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a non-diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, the Fund has adopted a plan (or plans) of distribution
pursuant to Rule 12b-1 under the Investment Company Act with respect to certain
of its classes and/or series of Shares (the Plans) authorizing payments by the
Fund to the Distributor with respect to the distribution of such classes and/or
series of Shares and the maintenance of related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Shares of the Fund to sell Shares to the public on behalf
of the Fund and the Distributor hereby accepts such appointment and agrees to
act hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund
<PAGE>
through the Distributor on the terms and conditions set forth below.
Section 2. EXCLUSIVE NATURE OF DUTIES
Except with respect to a period of time (not to exceed 60 days) during
which the Distributor and Prudential Securities Incorporated will serve as
co-distributors of the Fund in the transition of distribution services from
Prudential Securities Incorporated to the Distributor, the Distributor shall be
the exclusive representative of the Fund to act as principal underwriter and
distributor of the Fund's Shares, provided 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
<PAGE>
investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board. 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
3
<PAGE>
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.
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.
Section 6. DUTIES OF THE DISTRIBUTOR
4
<PAGE>
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. Payment of these amounts to the Distributor is not contingent upon
the adoption or continuation of any Plan.
5
<PAGE>
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
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its
6
<PAGE>
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 shall arise out of or be based upon any
7
<PAGE>
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:
-----------------------------
Prudential Tax-Managed Equity Fund
By:
-----------------------------
9
<PAGE>
DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and
_________________ ("Dealer") have agreed that Dealer will participate in the
distribution of shares ("Shares") of all the funds and series thereof (as they
may exist from time to time) comprising the Prudential Mutual Fund Family (each
a "Fund" and collectively the "Funds") and any classes thereof for which
Distributor now or in the future serves as principal underwriter and
distributor, subject to the terms of this Dealer Agreement ("Agreement"). Any
such additional Funds will be included in this Agreement upon Distributor's
written notification to Dealer.
1. LICENSING
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners,
directors, officers, employees, and agents who will be utilized by Dealer with
respect to its duties and activities under this Agreement is either
appropriately licensed or exempt from such licensing requirements by the
appropriate regulatory agency of each state or other jurisdiction in which
Dealer will offer and sell Shares of the Funds.
c. Dealer agrees that: (i) termination or suspension of its
registration with the SEC; (ii) termination or suspension of its membership with
the NASD; or (iii) termination or suspension of its license to do business by
any state or other jurisdiction or federal regulatory agency shall immediately
cause the termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to
the Conduct Rules of the NASD and such Conduct Rules shall control any provision
to the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable
state and federal laws and all rules and regulations promulgated thereunder
generally affecting the sale or distribution of mutual fund shares.
2. ORDERS
a. Dealer agrees to offer and sell Shares of the Funds (including
those of each of its classes) only at the regular public offering price
applicable to such Shares and in effect at the time of each transaction. The
procedures relating to all orders and the handling of each order (including the
manner of computing the net asset value of Shares and the effective time of
orders received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of
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additional information (including any supplements, stickers or amendments
thereto) relating to each Fund, as filed with the SEC ("Prospectus"); (ii) the
new account application for each Fund, as supplemented or amended from time to
time; and (iii) Distributor's written instructions and multiple class pricing
procedures and guidelines, as provided to Dealer from time to time. To the
extent that the Prospectus contains provisions that are inconsistent with this
Agreement or any other document, the terms of the Prospectus shall be
controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is
not authorized to act as broker or agent for, or employee of, Distributor, any
Fund or any other dealer, and Dealer shall not in any manner represent to any
third party that Dealer has such authority or is acting in such capacity.
Rather, Dealer agrees that it is acting as principal for Dealer's own account or
as agent on behalf of Dealer's customers in all transactions in Shares, except
as provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if
the NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. DUTIES OF DEALER
a. Dealer agrees to purchase Shares only from Distributor or from
Dealer's customers.
b. Dealer agrees to enter orders for the purchase of Shares only
from Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
c. Dealer agrees to date and time stamp all orders received by
Dealer and promptly, upon receipt of any and all orders, to transmit to
Distributor all orders received prior to
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<PAGE>
the time described in the Prospectus for the calculation of each Fund's net
asset value so as to permit Distributor to process all orders at the price next
determined after receipt by Dealer, in accordance with the Prospectus. Dealer
agrees not to withhold placing orders for Shares with Distributor so as to
profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of
Shares made through Dealer and to furnish Distributor or regulatory authorities
with copies of such records upon request. In that regard, Dealer agrees that,
unless Dealer holds Shares as nominee for its customers or participates in the
NSCC Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its
customers Prospectuses, proxy solicitation materials and related information and
proxy cards, semi-annual and annual shareholder reports and any other materials
in compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor
shall be in Fed Funds, New York clearinghouse or other immediately available
funds and that such funds shall be received by Distributor by the earlier of:
(i) the end of the third (3rd) business day following Dealer's receipt of the
customer's order to purchase such Shares; or (ii) the settlement date
established in accordance with Rule 15c6-1 under the Securities Exchange Act of
1934, as amended. If such payment is not received by Distributor by such date,
Dealer shall forfeit its right to any concession or commission with respect to
such order, and Distributor reserves the right, without notice, forthwith to
cancel the sale, or, at its option, to sell the Shares ordered back to the Fund,
in which case Distributor may hold Dealer responsible for any loss, including
loss of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.
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<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 Shares of another Fund, or class thereof, having the same sales
charge structure as the Fund, or class thereof, from which the exchange was
made, in accordance with the Prospectus.
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<PAGE>
b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares
purchased in a Qualifying Sale are redeemed within twelve (12) months of the end
of the month of purchase, Distributor shall be entitled to recover any advance
payment attributable to the redeemed Shares by reducing any account payable or
other monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which
distribution plans have been adopted under Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Rule 12b-1 Plans"), Distributor also is
authorized to pay the Dealer continuing distribution and/or service fees, as
specified in Schedule A and the relevant Fund Prospectus, with respect to Shares
of any such Fund, to the extent that Dealer provides distribution, marketing,
administrative and other services and activities regarding the promotion of such
Shares and the maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or
service fees under Rule 12b-1 Plans applicable to Shares purchased by Dealer's
customers, Distributor directs Dealer to provide enhanced shareholder services
such as: processing purchase and redemption transactions; establishing
shareholder accounts; and providing certain information and assistance with
respect to the Funds. (Redemption levels of shareholder accounts assigned to
Dealer will be considered in evaluating Dealer's continued ability to receive
payments of distribution and/or service fees.) In addition, Dealer agrees to
support Distributor's marketing efforts by, among other things, granting
reasonable requests for visits to Dealer's office by Distributor's wholesalers
and marketing representatives, including all Funds covered by a Rule 12b-1 Plan
on Dealer's "approved," "preferred" or other similar product lists, if
applicable, and otherwise providing satisfactory product, marketing and sales
support. Further, Dealer agrees to provide Distributor with supporting
documentation concerning the shareholder services provided, as Distributor may
reasonably request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be
based on the value of Shares attributable to Dealer's customers and eligible for
such payment, and shall be calculated on the basis of and at the rates set forth
in the compensation schedule then in effect. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees paid to
Dealer pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's Prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule 12b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).
f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer
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<PAGE>
hereby acknowledges that all payments under Rule 12b-1 Plans are subject to
limitations contained in such Rule 12b-1 Plans and may be varied or discontinued
at any time.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
a. The Prospectus for each Fund describes the provisions whereby the
Fund, under all ordinary circumstances, will redeem Shares held by shareholders
on demand. Dealer agrees that it will not make any representations to
shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
deferred sales charge or redemption fee, determined after receipt of the order
as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at
a price below that next quoted by the Fund for redemption or repurchase, I.E.,
at the net asset value of such Shares, less any applicable deferred sales
charge, or redemption fee, in accordance with the Fund's Prospectus. Dealer
shall, however, be permitted to sell Shares for the account of the customer or
record owner to the Funds at the repurchase price then currently in effect for
such Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has
made, if instructions in proper form, including any outstanding certificates,
are not received by Distributor within the time customary or the time required
by law, the redemption may be canceled forthwith without any responsibility or
liability on Distributor's part or on the part of any Fund, or Distributor, at
its option, may buy the shares redeemed on behalf of the Fund, in which latter
case Distributor may hold Dealer responsible for any loss, including loss of
profit, suffered by Distributor resulting from Distributor's failure to settle
the redemption.
d. Dealer agrees that it will comply with any restrictions and
limitations on exchanges described in each Fund's Prospectus, including any
restrictions or prohibitions relating to frequent purchases and redemptions
(i.e., market timing).
6. MULTIPLE CLASSES OF SHARES
Distributor may, from time to time, provide Dealer with written
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of Shares with different sales charges and distribution-related
operating expenses.
7. FUND INFORMATION
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations concerning Shares of any Fund except those contained in the
Fund's then current Prospectus or in materials provided by Distributor.
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<PAGE>
b. Distributor will supply to Dealer Prospectuses, reasonable
quantities of sales literature, sales bulletins, and additional sales
information as provided by Distributor. Dealer agrees to use only advertising
or sales material relating to the Funds that: (i) is supplied by Distributor, or
(ii) conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Funds and is approved in writing by Distributor in advance of its
use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. SHARES
a. Distributor acts solely as agent for the Fund and Distributor
shall have no obligation or responsibility with respect to Dealer's right to
purchase or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws
regulating the sale of securities in the United States or any foreign
jurisdiction, with respect to the qualification or status of Dealer or Dealer's
personnel selling Fund Shares. Distributor shall not, in any event, be liable
or responsible for the issue, form, validity, enforceability and value of such
Shares or for any matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in
any foreign jurisdiction, except with the express written consent of
Distributor.
9. INDEMNIFICATION
a. Dealer agrees to indemnify, defend and hold harmless Distributor
and the Funds and their predecessors, successors, and affiliates, each current
or former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to: (i) any alleged violation
of any statute or regulation (including without limitation the securities laws
and regulations of the United States or any state or foreign country) or any
alleged tort or breach of contract, related to the offer or sale by Dealer of
Shares of the Funds pursuant to this Agreement (except to the extent that
Distributor's negligence or failure to follow correct instructions received from
Dealer is the cause of such loss,
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<PAGE>
claim, liability, cost or expense); (ii) any redemption or exchange pursuant to
instructions received from Dealer or its partners, affiliates, officers,
directors, employees or agents; or (iii) the breach by Dealer of any of its
representations and warranties specified herein or the Dealer's failure to
comply with the terms and conditions of this Agreement, whether or not such
action, failure, error, omission, misconduct or breach is committed by Dealer or
its predecessor, successor, or affiliate, each current or former partner,
officer, director, employee or agent and each person who controls or is
controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer
and its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable time, of
any claim or complaint or any enforcement action or other proceeding with
respect to Shares offered hereunder against Dealer or its partners, affiliates,
officers, directors, employees or agents, or any person who controls Dealer,
within the meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of
(i) any report filed pursuant to NASD Conduct Rule 3070, including, without
limitation quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed
with any other self-regulatory organization in lieu of Rule 3070 reports
pursuant to Rule 3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions
shall survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
a. In addition to the automatic termination of this Agreement
specified in Section 1.c. of this Agreement, each party to this Agreement may
unilaterally cancel its participation in this Agreement by giving thirty (30)
days prior written notice to the other party. In addition, each party to this
Agreement may terminate this Agreement immediately by giving written notice to
the other party of that other party's material breach of this Agreement. Such
notice shall be deemed to have been given and to be effective on the date on
which it was either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
b. This Agreement shall terminate immediately upon the appointment
of a Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective date
of termination and shall
A-8
<PAGE>
not relieve Dealer of its obligations, duties and indemnities specified in this
Agreement. A trade placed by Dealer subsequent to its voluntary termination of
this Agreement will not serve to reinstate the Agreement. Reinstatement, except
in the case of a temporary suspension of Dealer, will only be effective upon
written notification by Distributor.
d. This Agreement is not assignable or transferable and will
terminate automatically in the event of its "assignment," as defined in the
Investment Company Act of 1940, as amended and the rules, regulations and
interpretations thereunder. The Distributor may, however, transfer any of its
duties under this Agreement to any entity that controls or is under common
control with Distributor.
e. This Agreement may be amended by Distributor at any time by
written notice to Dealer. Dealer's placing of an order or accepting payment of
any kind after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
Distributor represents and warrants that:
a. It is a limited liability company duly organized and existing and
in good standing under the laws of the state of Delaware and is duly registered
or exempt from registration as a broker-dealer in all states and jurisdictions
in which it provides services as principal underwriter and distributor for the
Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's
charter and by-laws to enter into this Agreement and perform all activities and
services of the Distributor provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Distributor's ability to perform under this
Agreement.
d. All requisite actions have been taken to authorize Distributor to
enter into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found elsewhere in
this Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the
laws of the state, commonwealth or other jurisdiction in which Dealer is
organized and that Dealer will not offer Shares of any Fund for sale in any
state or jurisdiction where such Shares may not be legally sold or where Dealer
is not qualified to act as a broker-dealer.
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<PAGE>
b. It is empowered under applicable laws and by Dealer's
organizational documents to enter into this Agreement and perform all activities
and services of the Dealer provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Dealer's ability to perform under this
Agreement.
c. All requisite actions have been taken to authorize Dealer to
enter into and perform this Agreement.
d. It is not, at the time of the execution of this Agreement,
subject to any enforcement or other proceeding with respect to its activities
under state or federal securities laws, rules or regulations.
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
a. Should any of Dealer's concession accounts with Distributor have
a debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal court
having jurisdiction.
c. This Agreement shall be governed and construed in accordance with
the laws of the state of New Jersey, not including any provision which would
require the general application of the law of another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial proceeding with
respect to each's activities under this Agreement and promptly to notify the
other party of any such investigation or proceeding.
15. CAPTIONS
All captions used in this Agreement are for convenience only, are not
a party hereof, and are not to be used in construing or interpreting any aspect
hereof.
16. ENTIRE UNDERSTANDING
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement shall be binding upon the parties hereto when signed
by Dealer and accepted by Distributor.
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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:
-----------------------------------
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Exhibit (g)
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
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1. Employment of Custodian and Property to be Held by It . . . . . . . . -1-
2. Duties to the Custodian with Respect to Property of The Fund
Held By the Custodian in the United States. . . . . . . . . . . . . . -2-
2.1 Holding Securities. . . . . . . . . . . . . . . . . . . . . . -2-
2.2 Delivery of Securities. . . . . . . . . . . . . . . . . . . . -2-
2.3 Registration of Securities. . . . . . . . . . . . . . . . . . -6-
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.5 Availability of Federal Funds . . . . . . . . . . . . . . . . -7-
2.6 Collection of Income. . . . . . . . . . . . . . . . . . . . . -8-
2.7 Payment of Fund Monies. . . . . . . . . . . . . . . . . . . . -8-
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . . . -11-
2.10 Deposit of Securities in Securities Systems . . . . . . . . . -11-
2.10A Fund Assets Held in the Custodian's Direct Paper System . . . -13-
2.11 Segregated Account. . . . . . . . . . . . . . . . . . . . . . -14-
2.12 Ownership Certificates for Tax Purposes . . . . . . . . . . . -15-
2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
2.14 Communications Relating to Fund Portfolio Securities. . . . . -16-
2.15 Reports to Fund by Independent Public Accountants . . . . . . -16-
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States . . . . . . . . . . . . . . . . . . -17-
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . . . -17-
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . . . -17-
3.3 Foreign Securities Depositories . . . . . . . . . . . . . . . -18-
3.4 Segregation of Securities . . . . . . . . . . . . . . . . . . -18-
3.5 Agreements with Foreign Banking Institutions. . . . . . . . . -18-
3.6 Access of Independent Accountants of the Fund . . . . . . . . -19-
3.7 Reports by Custodian. . . . . . . . . . . . . . . . . . . . . -19-
3.9 Liability of Foreign Sub-Custodians . . . . . . . . . . . . . -20-
3.10 Liability of Custodian. . . . . . . . . . . . . . . . . . . . -21-
3.11 Reimbursements for Advances . . . . . . . . . . . . . . . . . -21-
3.12 Monitoring Responsibilities . . . . . . . . . . . . . . . . . -22-
3.13 Branches of U.S. Banks. . . . . . . . . . . . . . . . . . . . -22-
4. Payments for Repurchases or Redemptions and Sales of Shares of
the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
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<PAGE>
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . -24-
6. Actions Permitted without Express Authority . . . . . . . . . . . . . -24-
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . -25-
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income . . . . . . . . . . . . -26-
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
10. Opinion of Fund's Independent Accountant . . . . . . . . . . . . . . -27-
11. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . -27-
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . -27-
13. Effective Period, Termination and Amendment . . . . . . . . . . . . . -29-
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . -30-
15. Interpretive and Additional Provisions . . . . . . . . . . . . . . . -32-
16. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . -32-
17. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
18. The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
19. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . -33-
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<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and each Fund listed on Appendix A which evidences its agreement
to be bound hereby by executing a copy of this Contract (each such Fund
individually hereinafter referred to as the "Fund").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/ Declaration of Trust. The Fund agrees to deliver to the
Custodian all securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, ("Shares") of
the Fund as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of the Fund held or received by the Fund and
not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors/Trustees of the Fund, and provided that the Custodian shall
have the same responsibility or liability to the Fund on account
<PAGE>
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 the parties, and
only in the following cases:
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<PAGE>
(1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian;
(7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian
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<PAGE>
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 will not be held liable or responsible for the delivery
of securities owned by
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<PAGE>
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 time in the Fund's currently
effective prospectus and statement of
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<PAGE>
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 corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange
-6-
<PAGE>
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 deposited with each
such bank or trust company shall be approved by vote of a majority of the
Board of Directors/Trustees of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the
Fund and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified times
agreed upon from time to time by the Fund and the Custodian in the amount of
checks received in payment for Shares of the Fund which are deposited into the
Fund's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments with
respect to registered securities held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the securities
-7-
<PAGE>
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;
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<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
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<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
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<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
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<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
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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
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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.
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3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as to
securities acquired for the Fund, the identity of the entity having physical
possession of such securities.
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
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the purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the performance of
its duties and to indemnify, and hold harmless, the Custodian and each Fund
from and against any loss, damage, cost, expense, liability or claim arising out
of or in connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense, 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
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or terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this paragraph
3.10, in delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss due to
such delegation, except such loss as may result from (a) political risk
(including, but not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed hostilities)
or (b) other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident or other
losses under circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in the event that the
Custodian or its nominees shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as 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.
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
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inform the Fund in the event that the Custodian learns of a material adverse
change in the financial condition of a foreign sub-custodian or any material
loss of the assets of the Fund or in the case of any foreign sub-custodian
not the subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there appears to be
a substantial likelihood that its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 shall not apply where the custody of the Fund assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation/Declaration of Trust and any
applicable votes of the Board of Directors/Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who have delivered
to the Transfer Agent a request for redemption or repurchase of their Shares.
In
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connection with the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of the
Fund, the Custodian shall honor checks drawn on the Custodian by a holder of
Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or from
the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to
time by the Fund. The Custodian will provide timely notification to the Fund
and the Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. PROPER INSTRUCTIONS.
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. It is understood and agreed that the Board
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of Directors/Trustees has authorized (i) Prudential Mutual Fund Management,
Inc., as Manager of the Fund, and (ii) The Prudential Investment Corporation
(or Prudential-Bache Securities Inc.), as Subadviser to the Fund, to deliver
proper instructions with respect to all matters for which proper instructions
are required by this Article 5. The Custodian may rely upon the certificate
of an officer of the Manager or Subadviser, as the case may be, with respect
to the person or persons authorized on behalf of the Manager and Subadviser,
respectively, to sign, initial or give proper instructions for the purpose of
this Article 5. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Fund and the Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.
The Custodian may in its discretion, without express authority from
the Fund:
(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
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of the Fund except as otherwise directed by the Board of Directors/Trustees of
the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/ Trustees pursuant to the Articles of
Incorporation/Declaration of Trust as described in such vote, and such vote may
be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer 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
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per share and the daily income of the Fund shall be made at the time or times
described from time to time in the Fund's currently effective prospectus.
9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation
of securities owned by the Fund and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, Form N-2 (in the case
of a closed end fund) and Form N-SAR or other periodic reports to the
Securities and Exchange Commission and with respect to any other requirements of
such Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses
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as Custodian, as agreed upon from time to time between the Fund and the
Custodian.
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
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
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foreign country including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or 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
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of the parties hereto and may be terminated by either party by an instrument in
writing delivered or mailed, postage prepaid to the other party, such
termination to take effect not sooner than sixty (60) days after the date of
such delivery or mailing; PROVIDED, however that the Custodian shall not act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Directors/Trustees of
the Fund has approved the initial use of a particular Securities System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Directors/Trustees has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not act under
Section 2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors/Trustees has
approved the initial use of the Direct Paper System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has reviewed the use by the Fund of the Direct Paper System;
PROVIDED FURTHER, however, that the Fund shall not amend or 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
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as may be due as of the date of such termination and shall likewise reimburse
the Custodian for its costs, expenses and disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date 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
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Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
15. 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 interpretive 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
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the Fund and the Custodian relating to the custody of the Fund's assets.
18. THE PARTIES
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual
Fund and the Custodian. With respect to any Fund listed on Appendix A which
is organized as a Massachusetts Business Trust, references to Board of
Directors and Articles of Incorporation shall be deemed a reference to Board
of Directors/Trustees and Articles of Incorporation/Declaration of Trust
respectively and reference to shares of capital stock shall be deemed a
reference to shares of beneficial interest.
19. LIMITATION OF LIABILITY
Each Fund listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Articles
of Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
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.
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ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
- --------------------------- ----------------------------------------
Assistant Secretary Vice President
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
/s/ S. Jane Rose By /s/ R. F. Gunia
- --------------------------- ---------------------------------------
Secretary Vice President
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Exhibit (h)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL TAX-MANAGED EQUITY FUND
and
PRUDENTIAL MUTUAL FUND SERVICES LLC
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Agent. . . . . . . . . . . .1
Article 2 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . .5
Article 3 Representations and Warranties of PMFS . . . . . . . . . . . . .5
Article 4 Representations of Warranties of the Trust . . . . . . . . . . .7
Article 5 Duty of Care and Indemnification . . . . . . . . . . . . . . . .7
Article 6 Documents and Covenants of the Trust 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
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the _____day of______________, 19__ by and between
Prudential Tax-Managed Equity Fund, a Delaware business trust, having its
principal office and place of business at Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102 (the Trust), and PRUDENTIAL MUTUAL FUND
SERVICES LLC, a New Jersey limited liability corporation, having its
principal office and place of business at Raritan Plaza One, Edison, New
Jersey 08837 (the Agent or PMFS).
WHEREAS, the Trust desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF PMFS
1.01 Subject to the terms and conditions set forth in this Agreement,
the Trust hereby employs and appoints PMFS to act as, and PMFS agrees to act as,
the transfer agent for the authorized and issued shares of the beneficial
interest of the Trust, $.001 par value (Shares), dividend disbursing agent and
shareholder servicing agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Trust or any series thereof
(Shareholders) and set out in the currently
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effective prospectus and statement of additional information (prospectus) of the
Trust, including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Trust and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the Custodian
of the Trust authorized pursuant to the Declaration of Trust of the Trust (the
Custodian);
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Trust;
(vii) Calculate any sales charges payable by a Shareholder on
purchases
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and/or redemptions of Shares of the Trust as such charges may be reflected in
the prospectus;
(viii) Maintain records of account for and advise the Trust and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Trust and maintain pursuant
to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 (1934 Act) a record
of the total number of Shares of the Trust which are authorized, based upon data
provided to it by the Trust, and issued and outstanding. PMFS shall also
provide to the Trust on a regular basis the total number of Shares which are
authorized, issued and outstanding and shall notify the Trust in case any
proposed issue of Shares by the Trust would result in an overissue. In case any
issue of Shares would result in an overissue, PMFS shall refuse to issue such
Shares and shall not countersign and issue any certificates requested for such
Shares. When recording the issuance of Shares, PMFS shall have no obligation to
take cognizance of any Blue Sky laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the Trust.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and
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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, preparing and mailing activity statements
for Shareholders and providing Shareholder account information and (ii) provide
a system which will enable the Trust to monitor the total number of Shares sold
in each State or other jurisdiction.
(c) In addition, the Trust shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of PMFS for the Trust's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Trust and the reporting of such transactions to the Trust as provided above
and as agreed from time to time by the Trust and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Trust and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Trust and PMFS.
Article 2 FEES AND EXPENSES
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2.01 For performance by PMFS pursuant to this Agreement, the Trust
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Trust and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Trust
agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS
for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Trust will
be reimbursed by the Trust.
2.03 The Trust agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Trust reports and
other mailings to all Shareholder accounts shall be advanced to PMFS by the
Trust upon request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Trust that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of New Jersey and it is duly qualified to carry on its
business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
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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 to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants to PMFS that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Delaware.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the 1940 Act).
4.05 A registration statement under the Securities Act of 1933 (the
1933 Act) is currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to be made, with
respect to all Shares of the Trust being offered for sale.
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Article 5 DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Trust shall indemnify
and hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Trust's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trust's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Trust hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Trust, and (ii)
have been prepared and/or maintained by the Trust or any other person or firm on
behalf of the Trust.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Trust.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky laws
of any State or other jurisdiction that notice of such Shares be filed in
such State or other jurisdiction or in violation of any stop order or other
determination or ruling by any federal agency or any State or other
jurisdiction with respect to the offer or sale of such Shares in such State
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or other jurisdiction.
5.02 PMFS shall indemnify and hold the Trust harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission
to act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Trust for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Trust for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Trust, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Trust, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Trust. PMFS, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Trust, and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
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5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE TRUST AND PMFS
6.01 The Trust shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Trust authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Declaration of Trust and By-Laws of the Trust
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and all amendments thereto;
(c) The current registration statements and any amendments and supplements
thereto filed with the SEC pursuant to the requirements of the 1933 Act and the
1940 Act;
(d) A specimen of the certificate for Shares of the Trust in the form
approved by the Board of Trustees, with a certificate of the Secretary of the
Trust as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Trust; and
(f) Such other certificates, documents or opinions as the Agent deems to
be appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Trust and will be preserved, maintained and made available in accordance
with such Section 31 of the
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1940 Act, and the Rules and Regulations thereunder, and will be surrendered
promptly to the Trust on and in accordance with its request.
6.04 PMFS and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
except as may be required by law or with the prior consent of PMFS and the
Trust.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Trust, PMFS will endeavor to notify the Trust and to
secure instructions from an authorized officer of the Trust as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Trust. Additionally, PMFS reserves the right to charge for any
other reasonable fees and expenses associated with such termination.
Article 8 ASSIGNMENT
8.01 Except as provided in Section 8.03 below, neither this Agreement
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nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by
the Trust, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to: (i) Prudential Securities Incorporated (Prudential Securities), a
registered broker-dealer, (ii) The Prudential Insurance Company of America
(Prudential), (iii) Pruco Securities Corporation, a registered broker-dealer,
(iv) any Prudential Securities or Prudential subsidiary or affiliate duly
registered as a broker-dealer and/or a transfer agent pursuant to the 1934 Act
or (v) any other Prudential Securities or Prudential affiliate or subsidiary;
provided, however, that PMFS shall be as fully responsible to the Trust for the
acts and omissions of any agent or subcontractor as it is for its own acts and
omissions.
Article 9 AFFILIATIONS
9.01 PMFS may now or hereafter, without the consent of or notice to
the Trust, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential Securities
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
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9.02 It is understood and agreed that the trustees, officers,
employees, agents and Shareholders of the Trust, and the directors, officers,
employees, agents and shareholders of the Trust's investment adviser and/or
distributor, are or may be interested in the Agent as directors, officers,
employees, agents, shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Agent may be interested in the Trust as
trustees, officers, employees, agents, Shareholders or otherwise, or in the
investment adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
Article 10 AMENDMENT
10.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Trustees of the Trust.
Article 11 APPLICABLE LAW
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 MISCELLANEOUS
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Trust issued by a
surety company satisfactory to
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PMFS, except that PMFS may accept an affidavit of loss and indemnity agreement
executed by the registered holder (or legal representative) without surety in
such form as PMFS deems appropriate indemnifying PMFS and the Trust for the
issuance of a replacement certificate, in cases where the alleged loss is in the
amount of $1000 or less.
12.02 In the event that any check or other order for payment of money
on the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Trust's distributor
(Distributor) of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Trust and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Trust or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Trust:
Prudential Tax-Managed Equity 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
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Article 13 MERGER OF AGREEMENT
13.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
PRUDENTIAL TAX-MANAGED EQUITY FUND
BY:
---------------------------
Brian M. Storms
President
ATTEST:
- --------------------------------------
Marguerite E.H. Morrison
Secretary
PRUDENTIAL MUTUAL FUND
SERVICES LLC
BY:
---------------------------
Thomas F. Higgins
ATTEST:
- --------------------------------------
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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 ___________, 1999 through__________, 1999 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 $0.20
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 Trust.
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PAYMENT - An invoice will be presented to the Trust on a monthly basis assessing
the Trust the appropriate fee and out-of-pocket expenses.
PRUDENTIAL TAX-MANAGED EQUITY PRUDENTIAL MUTUAL FUND
FUND SERVICES LLC
NAME: NAME:
------------------------ ---------------------------
TITLE: TITLE:
----------------------- --------------------------
DATE: DATE:
------------------------ ---------------------------
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Exhibit (m)(1)
PRUDENTIAL TAX-MANAGED EQUITY 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 Tax-Managed Equity Fund (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor,
as compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Trustees of the Fund, including a majority of
those Trustees who are not "interested persons" of the Fund (as defined in
the Investment Company Act) and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
Rule 12b-1 Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of
Class A shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the
<PAGE>
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 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
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of Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Trustees may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions and trailer commissions paid to, or on account
of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch
3
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expenses;
(c) amounts paid to Prudential Securities or Prusec for performing services
under a selected dealer agreement between Prudential Securities or
Prusec and the Distributor for sale of Class A shares of the Fund,
including sales commissions, trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than
current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A
shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Trustees of
the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Trustees of the Fund of the
commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
4
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5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Trustees of the Fund and a majority of the Rule 12b-1
Trustees by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time 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 the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as
to increase materially the amounts payable under this Plan unless such
amendment shall be approved by the vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class A
shares of the Fund. All material amendments of the Plan shall be approved by
a majority of the Board of 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.
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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: , 19
6
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Exhibit (m)(2)
PRUDENTIAL TAX-MANAGED EQUITY 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 Tax-Managed Equity Fund (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class B shares issued by the
Fund (Class B shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class B shares.
A majority of the Board of Trustees of the Fund, including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Trustees), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures under this Plan by the
Fund for Distribution Activities (defined below) are primarily intended to
result in the sale of Class B shares of the Fund within the meaning of paragraph
(a)(2) of Rule 12b-1 promulgated under the
<PAGE>
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 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
2
<PAGE>
of Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Trustees may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Trustees. The allocation of distribution expenses among classes will be subject
to the review of the Board of Trustees.
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 Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class B shares
of the Fund, including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead costs associated
with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class B shares
of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Trustees of
the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Fund such additional information as they
shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
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
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Trustees of the Fund and a majority of the Rule 12b-1
Trustees by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time 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 the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
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.
5
<PAGE>
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: , 199
6
<PAGE>
Exhibit (m)(3)
PRUDENTIAL TAX-MANAGED EQUITY 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 Tax-Managed Equity Fund (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by the
Fund (Class C shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class C shares.
A majority of the Board of Trustees of the Fund, including a majority
who are not "interested persons" of the Fund (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the Rule 12b-1
Trustees), have determined by votes cast in person at a meeting called for
the purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders.
Expenditures under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class C shares of the
<PAGE>
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class C shares of
the Fund and to service shareholder accounts using all of the facilities of
the Distributor's distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Prudential Securities Incorporated (Prudential Securities) and Pruco
Securities Corporation (Prusec). Services provided and activities undertaken to
distribute Class C shares of the Fund are referred to herein as "Distribution
Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25
of 1% per annum of the average daily net assets of the Class C shares
(service fee). The Fund shall
2
<PAGE>
calculate and accrue daily amounts payable by the Class C shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its
services a distribution fee of .75 of 1% per annum of the average daily net
assets of the Class C shares of the Fund for the performance of Distribution
Activities. The Fund shall calculate and accrue daily amounts payable by the
Class C shares of the Fund hereunder and shall pay such amounts monthly or at
such other intervals as the Board of Trustees may determine. Amounts payable
under the Plan shall be subject to the limitations of Rule 2830 of the NASD
Conduct Rules.
Amounts paid to the Distributor by the Class C shares of the Fund
will not be used to pay the distribution expenses incurred with respect to
any other class of shares of the Fund except that distribution expenses
attributable to the Fund as a whole will be allocated to the Class C shares
according to the ratio of the sale of Class C shares to the total sales of
the Fund's shares over the Fund's fiscal year or such other allocation method
approved by the Board of Trustees. The allocation of distribution expenses
among classes will be subject to the review of the Board of Trustees.
Payments hereunder will be applied to distribution expenses in the order in
which they are incurred, unless otherwise determined by the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
3
<PAGE>
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class C shares of
the Fund, including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class C shares
of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Trustees
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Fund such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Trustees of the Fund of the
commissions and account servicing fees to be paid by the Distributor to
account executives of the
4
<PAGE>
Distributor and to broker-dealers and other financial institutions which have
selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Trustees of the Fund and a majority of the Rule 12b-1
Trustees by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time 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 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 Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Trustees of the Fund and a
5
<PAGE>
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: , 199
6
<PAGE>
Exhibit (o)
PRUDENTIAL TAX-MANAGED EQUITY 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. Any material
amendment to this plan is subject to prior approval of the Board of
Directors/Trustees, including a majority of the independent Directors/Trustees.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a high initial sales charge
and a distribution and/or service fee pursuant to Rule 12b-1
under the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1%
per annum of the average daily net assets of the class. The
initial sales charge is waived or reduced for certain
eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial sales charge
but are subject to a high contingent deferred sales charge
(declining 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 subject to a low initial sales charge and
a 1% contingent deferred sales charge which will be imposed
on certain redemptions within the first 18 months after
purchase and a Rule 12b-1 fee not to exceed 1% per annum of
the average daily net assets of the class.
CLASS Z SHARES: Class Z shares are not subject to either an initial or
contingent deferred sales charge nor are they subject to any
Rule 12b-1 fee.
<PAGE>
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the net asset value of that class in relation to the net asset
value of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class may be different from that paid by another
class because of Rule 12b-1 fees and other expenses borne exclusively by
that class.
EXCHANGE PRIVILEGE
Holders of Class A Shares, Class B Shares, Class C Shares and Class Z
Shares shall have such exchange privileges as set forth in the Fund's
current prospectus. Exchange privileges may vary among classes and among
holders of a Class.
CONVERSION FEATURES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be
effected at relative net asset value without the imposition of any
additional sales charge.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Directors/Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The
<PAGE>
Directors/Trustees, including a majority of the independent
Directors/Trustees, shall take such action as is reasonably necessary to
eliminate any such conflicts that may develop. Prudential Investments Fund
Management LLC, the Fund's Manager, will be responsible for reporting any
potential or existing conflicts to the Directors/Trustees.
C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Dated: _________, 1998
