As filed with the Securities and Exchange Commission on March 1, 1995
Securities Act Registration No. 2-63394
Investment Company Act Registration No. 811-2896
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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. 25 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 24 [X]
(Check appropriate box or boxes)
------------------
PRUDENTIAL HIGH YIELD FUND, INC.
(Exact name of registrant as specified in charter)
(formerly Prudential-Bache High Yield Fund, Inc.)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a), of Rule 485.
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered Per Share* Offering Price** Fee
- ------------------- ------------ ---------------- ---------------- -----------
Common Stock,
par value
$.01 per share Indefinite*** N/A N/A N/A
- --------------------------------------------------------------------------------
Common Stock,
par value
$.01 per share 13,885,394 $8.18 $113,582,524 $100.00
- --------------------------------------------------------------------------------
* Computed under Rule 457(d) on the basis of the offering price per share on
the close of business on February 16, 1995.
** Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2, $1,272,533,452 of shares was redeemed during the
fiscal year ended December 31, 1994. $1,159,240,928 of shares was used for
reductions pursuant to paragraph (c) of Rule 24f-2 during the fiscal year
ended December 31, 1994. $113,292,524 of shares is the amount of redeemed
shares used for reduction for this amendment.
*** Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The Rule 24f-2 Notice for the Registrant's most recent fiscal
year ended December 31, 1994 was filed on February 24, 1995.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
Part A
<S> <C> <C>
Item 1. Cover Page ........................................... Cover Page
Item 2. Synopsis ............................................. Fund Expenses
Item 3. Condensed Financial Information ...................... Fund Expenses; Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant .................... Cover Page; Fund Highlights; How the
Fund Invests; General Information
Item 5. Management of the Fund ............................... Financial Highlights; How the Fund
is Managed
Item 6. Capital Stock and Other Securities ................... Dividends, Distributions and Taxes;
General Information
Item 7. Purchase of Securities Being Offered ................. Shareholder Guide; How the Fund
Values its Shares
Item 8. Redemption or Repurchase ............................. Shareholder Guide; How the Fund
Values its Shares; General Information
Item 9. Pending Legal Proceedings ............................ Not Applicable
Part B
Item 10. Cover Page ........................................... Cover Page
Item 11. Table of Contents .................................... Table of Contents
Item 12. General Information and History ...................... General Information
Item 13. Investment Objectives and Policies ................... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund ............................... Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities .. Not Applicable
Item 16. Investment Advisory and Other Services ............... Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices ............. Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered ...................................... Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status ........................................... Taxes, Dividends and Distributions
Item 21. Underwriters ......................................... Distributor
Item 22. Calculation of Performance Data ...................... Performance Information
Item 23. Financial Statements ................................. Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
</TABLE>
<PAGE>
Prudential High Yield Fund, Inc.
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Prospectus dated February 28, 1995
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Prudential High Yield Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose primary investment objective is to maximize
current income through investment in a diversified portfolio of high yield
fixed-income securities. Capital appreciation is a secondary investment
objective which will only be sought when consistent with the primary objective.
The high yield securities sought by the Fund will generally be securities rated
in the medium to lower categories by recognized rating services (Baa or lower by
Moody's Investors Service, or BBB or lower by Standard & Poor's Ratings Group)
or non-rated securities which are, in the opinion of the Fund's investment
adviser, of comparable quality. Generally, the Fund will not invest in
securities rated below B by both of these services. There can be no assurance
that the Fund's investment objectives will be achieved. See "How the Fund
Invests-Investment Objective and Policies."
The Fund may invest up to 100% of its assets in lower-rated bonds, commonly
known as "junk bonds." Investments of this type are subject to greater risk of
loss of principal and interest, including default risk, than higher rated bonds.
Purchasers should carefully assess the risks associated with an investment in
the Fund. See "How the Fund Invests-Investment Objective and Policies" at page
8. See also "How the Fund Invests-Risk Factors Relating to Investing in High
Yield Securities" at page 9 and "Description of Corporate Bond Ratings" at page
A-1.
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated February 28, 1995, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
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FUND HIGHLIGHTS
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The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
- --------------------------------------------------------------------------------
What is Prudential High Yield Fund, Inc.?
Prudential High Yield Fund, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
What are the Fund's Investment Objectives?
The primary investment objective of the Fund is to maximize current income
through investment in a diversified portfolio of high yield fixed-income
securities rated Baa or lower by Moody's Investors Service (Moody's), or BBB or
lower by Standard & Poor's Ratings Group (Standard & Poor's), and which in the
opinion of the Fund's investment adviser do not subject a fund investing in such
securities to unreasonable risks. As a secondary investment objective, the Fund
will seek capital appreciation but only when consistent with its primary
objective. Capital appreciation may result, for example, from an improvement in
the credit standing of an issuer whose securities are held in the Fund's
portfolio or from a general lowering of interest rates, or a combination of
both. There can be no assurance that the Fund's objectives will be achieved. See
"How the Fund Invests-Investment Objective and Policies" at page 8.
Risk Factors and Special Characteristics
The Fund invests primarily in lower-rated bonds, commonly known as "junk
bonds." Investments of this type are subject to greater risk of loss of
principal and interest. Purchasers should carefully assess the risks associated
with an investment in the Fund. See "How the Fund Invests-Investment Objective
and Policies" at page 8. See also "How the Fund Invests-Risk Factors Relating to
Investing in High Yield Securities" at page 9 and "Description of Corporate Bond
Ratings" at page A-1.
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .50 of 1%
of the Fund's average daily net assets up to and including $250 million, .475 of
1% of the next $500 million, .45 of 1% of the next $750 million, .425 of 1% of
the next $500 million, .40 of 1% of the next $500 million, .375 of 1% of the
next $500 million and .35 of 1% of the Fund's average daily net assets in excess
of $3 billion. As of January 31, 1995, PMF served as manager or administrator to
69 investment companies, including 39 mutual funds, with aggregate assets of
approximately $45 billion. The Prudential Investment Corporation (PIC or the
Subadviser) furnishes investment advisory services in connection with the
management of the Fund under a Subadvisory Agreement with PMF. See "How the Fund
is Managed-Manager" at page 11.
Who Distributes the Fund's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares. The Fund currently reimburses PMFD for expenses
related to the distribution of Class A shares and is paid an annual distribution
and service fee which is currently being charged at the rate of .15 of 1% of the
average daily net assets of the Class A shares.
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class B and Class C shares. Prudential Securities is
paid an annual distribution and service fee at the rate of up to .75 of 1% of
the average daily net assets of the Class B shares and an annual distribution
and service fee which is currently being charged at the rate of .75 of 1% of the
average daily net assets of the Class C shares.
See "How the Fund is Managed-Distributor" at page 12.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
What is the Minimum Investment?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide-How to
Buy Shares of the Fund" at page 18 and "Shareholder Guide-Shareholder Services"
at page 27.
How Do I Purchase Shares?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "How the Fund Values its Shares"
at page 15 and "Shareholder Guide-How to Buy Shares of the Fund" at page 18.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
* Class A Shares: Sold with an initial sales charge of up to 4% of the
offering price.
* Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining
from 5% to zero of the lower of the amount invested or
the redemption proceeds) which will be imposed on
certain redemptions made within six years of purchase.
Although Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class
B shares will automatically convert to Class A shares
(which are subject to lower ongoing distribution-related
expenses) approximately seven years after purchase.
* Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to
higher ongoing distribution-related expenses than Class
A shares but do not convert to another class.
See "Shareholder Guide-Alternative Purchase Plan" at page 19.
How Do I Sell My Shares?
You may redeem shares of the Fund at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order.
However, the proceeds of redemptions of Class B and Class C shares may be
subject to a CDSC. See "Shareholder Guide-How to Sell Your Shares" at page 22.
How Are Dividends and Distributions Paid?
The Fund expects to declare daily and pay monthly dividends of net
investment income and make distributions of any net capital gains, if any, at
least annually. Dividends and distributions will be automatically reinvested in
additional shares of the Fund at NAV without a sales charge unless you request
that they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 16.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shareholder Transaction Expenses(D) Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) ............................... 4% None None
Maximum Sales Load or Deferred
Sales Load Imposed on
Reinvested Dividends .......................... None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) ........................... None 5% during the first year, 1% on redemptions
decreasing by 1% annually to made within one year
1% in the fifth and sixth years of purchase
and 0% the seventh year*
Redemption Fees ................................. None None None
Exchange Fees ................................... None None None
Annual Fund Operating Expenses Class A Class B Class C
(as a percentage of average net assets) Shares Shares Shares**
------ ------ ------
Management Fees .42% .42% .42%
12b-1 Fees .15%(D)(D) .75% .75%(D)(D)
Other Expenses .21% .21% .21%
Total Fund Operating Expenses .78% 1.38% 1.38%
</TABLE>
<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
<S> <C> <C> <C> <C>
Class A ......................................................... $48 $64 $82 $133
Class B ......................................................... $64 $74 $86 $127
Class C** ....................................................... $24 $44 $76 $166
You would pay the following expenses on the same investment assuming
no redemption:
Class A ......................................................... $48 $64 $82 $133
Class B ......................................................... $14 $44 $76 $142
Class C** ....................................................... $14 $44 $76 $166
The above example with respect to Class A and Class B shares is based on data
for the Fund's fiscal year ended December 31, 1994. The above example with
respect to Class C shares is based on expenses expected to have been incurred if
Class C shares had been in existence during the entire fiscal year ended
December 31, 1994. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes an estimate of
operating expenses of the Fund, such as directors' and professional fees,
registration fees, reports to shareholders, transfer agency and custodian fees.
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide-Conversion Feature-
Class B Shares."
** Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the entire fiscal year ended
December 31, 1994.
(D) Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges
than the economic equivalent of 6.25% of such shareholders' investment in
such shares. See "How the Fund is Managed-Distributor."
(D)(D) Although the Class A and Class C Distribution and Service Plans provide
that the Fund may pay a distribution fee of up to .30 of 1% per annum and
1% per annum of the average daily net assets of the Class A and Class C
shares, respectively, the Distributor has agreed to limit its
distribution fees with respect to Class A and Class C shares of the Fund
to no more than .15 of 1% and .75 of 1% of the average daily net asset
value of the Class A and Class C shares, respectively, for the year
ending December 31, 1995. Total operating expenses without such
limitations would be .93% and 1.63% for Class A and Class C shares,
respectively. See "How the Fund is Managed-Distributor."
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the periods indicated)
(Class A Shares)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The following
financial highlights contain selected data for a Class A share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. The information is based on data
contained in the financial statements.
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A
----------------------------------------------
January 22,
1990(D)(D)
Years ended December 31, through
------------------------------- December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 8.70 $ 8.19 $ 7.88 $ 6.72 $ 8.49
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ..................... .80 .84 .90 .93 1.01
Net realized and unrealized gain (loss) on
investments ............................. (1.00) .52 .32 1.26 (1.74)
------ ------ ------ ------ ------
Total from investment operations .......... (.20) 1.36 1.22 2.19 (.73)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ...... (.80) (.84) (.90) (.93) (1.01)
Dividends in excess of net investment income (.02) (.01) - - -
Distributions from paid-in capital
in excess of par ........................ - - (.01) (.10) (.03)
------ ------ ------ ------ ------
Total distributions ....................... (.82) (.85) (.91) (1.03) (1.04)
------ ------ ------ ------ ------
Net asset value, end of period ............ $ 7.68 $ 8.70 $ 8.19 $ 7.88 $ 6.72
====== ====== ====== ====== ======
TOTAL RETURN:(D) .......................... (2.35)% 17.32% 15.97% 34.29% (9.15)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ......... $161,435 $171,364 $106,188 $54,025 $21,448
Average net assets (000) ................ $165,517 $149,190 $ 81,129 $37,194 $15,594
Ratios to average net assets:
Expenses, including distribution fees . .78% .76% .85% .88% .93%**
Expenses, excluding distribution fees . .63% .61% .70% .73% .78%**
Net investment income ................. 9.86% 9.93% 10.96% 12.73% 13.58%**
Portfolio turnover rate ................. 74% 85% 68% 51% 40%
</TABLE>
- ---------------
* Commencement of offering of Class A shares.
** Annualized.
(D) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the years indicated)
(Class B Shares)
- --------------------------------------------------------------------------------
The following financial highlights with respect to each of the five years in the
period ended December 31, 1994, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The following
financial highlights contain selected data for a Class B share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. The information is based on data
contained in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988* 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of year ................. $ 8.69 $ 8.19 $ 7.88 $ 6.71 $ 8.52 $ 9.71 $ 9.69 $10.66 $10.33 $ 9.76
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .... .76 .79 .85 .88 1.00 1.10 1.10 1.05 1.12 1.23
Net realized and unrealized
gain (loss) on investments (1.00) .51 .32 1.26 (1.76) (1.19) - (.85) .36 .65
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations .............. (.24) 1.30 1.17 2.14 (.76) (.09) 1.10 .20 1.48 1.88
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ....... (.76) (.79) (.85) (.88) (1.02) (1.10) (1.08) (1.15) (1.06) (1.31)
Dividends in excess of net
investment income ....... (.02) (.01) - - - - - - - -
Distributions from paid-in
capital in excess of par - - (.01) (.09) (.03) - - (.02) (.09) -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ...... (.78) (.80) (.86) (.97) (1.05) (1.10) (1.08) (1.17) (1.15) (1.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
year .................... $7.67 $ 8.69 $ 8.19 $ 7.88 $ 6.71 $ 8.52 $ 9.71 $ 9.69 $10.66 $10.33
===== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN:(D) ......... (2.92)% 16.54% 15.30% 33.62% (9.52)% (1.38)% 11.87% 1.05% 14.83% 20.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000) ................. $3,311,323 $3,745,985 $2,887,698 $2,199,127 $1,626,067 $2,405,670 $2,561,016 $2,139,618 $1,860,267 $687,416
Average net assets
(000) ................. $3,566,709 $3,389,439 $2,582,922 $1,970,257 $1,994,229 $2,689,992 $2,427,581 $2,174,808 $1,351,181 $368,755
Ratio to average net
assets:
Expenses, including
distribution fees ....... 1.38% 1.36% 1.45% 1.48% 1.55% 1.36% 1.30% 1.33% 1.19% .95%
Expenses, excluding
distribution fees ....... .63% .61% .70% .73% .80% .71% .67% .69% .67% .81%
Net investment income .... 9.28% 9.35% 10.29% 11.65% 13.34% 11.70% 10.93% 10.11% 9.97% 11.70%
Portfolio turnover rate... 74% 85% 68% 51% 40% 59% 57% 49% 38% 59%
</TABLE>
* On May 2, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since then
has acted as manager of the Fund. See "Manager" in the Statement of
Additional Information.
(D) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period indicated)
(Class C Shares)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The following
financial highlights contain selected data for a Class C share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the period indicated. The information is based on data contained in the
financial statements.
- --------------------------------------------------------------------------------
Class C
-----------------
August 1, 1994*
Through
December 31, 1994
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.05
------
Income from investment operations:
Net investment income .32
Net realized and unrealized gain (loss) on
investments (.37)
------
Total from investment operations (.05)
------
Less distributions:
Dividends from net investment income (.32)
Dividends in excess of net investment income (.01)
------
Total distributions (.33)
------
Net asset value, end of period $ 7.67
======
TOTAL RETURN:(D) (0.79)%
RATIOS/SUPPLEMENTAL DATA:(D)(D)
Net assets, end of period (000) $4,860
------
Average net assets (000) $2,840
------
Ratios to average net assets:
Expenses, including distribution fees 1.48%**
Expenses, excluding distribution fees .73%**
Net investment income 9.80%**
Portfolio turnover rate 74%
* Commencement of offering of Class C shares.
** Annualized.
(D) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
(D)(D) Since the Fund did not commence a public offering of Class C shares until
August 1, 1994, historical expenses and ratios of expenses to average net
assets of Class A or Class B shares are not necessarily indicative of
future expenses and related ratios of Class C shares.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The primary investment objective of the Fund is to maximize current income
through investment in a diversified portfolio of high yield fixed-income
securities which in the opinion of the Fund's investment adviser do not subject
a fund investing in such securities to unreasonable risks. As a secondary
investment objective, the Fund will seek capital appreciation but only when
consistent with its primary objective. Capital appreciation may result, for
example, from an improvement in the credit standing of an issuer whose
securities are held in the Fund's portfolio or from a general lowering of
interest rates, or a combination of both. Conversely, capital depreciation may
result, for example, from a lowered credit standing or a general rise in
interest rates, or a combination of both. The achievement of the Fund's
objectives will depend upon the investment adviser's analytical and portfolio
management skills. There can be no assurance that these objectives will be
achieved.
The Fund's investment objectives are fundamental policies and, therefore,
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act of
1940, as amended (the Investment Company Act). Fund policies that are not
fundamental may be modified by the Board of Directors.
The higher yields sought by the Fund are generally obtainable from
securities rated in the lower categories by recognized rating services. The Fund
expects to seek high current income by investing principally in fixed income
securities rated Baa or lower by Moody's Investors Service (Moody's), or BBB or
lower by Standard & Poor's Ratings Group (Standard & Poor's). Corporate bonds
which are rated Baa by Moody's are described by Moody's as being investment
grade, but are also characterized as having speculative characteristics.
Corporate bonds rated below Baa by Moody's and BBB by Standard & Poor's are
considered speculative. The Fund will not invest in securities rated below B by
both Moody's and Standard & Poor's unless in the opinion of the investment
adviser the financial condition of the issuer or the protection afforded to the
particular securities is stronger than would otherwise be indicated by such
lower ratings. A description of corporate bond ratings is contained in Appendix
A to this Prospectus. Since some issuers do not seek ratings for their
securities, non-rated securities will also be considered for investment by the
Fund but only when the investment adviser believes that the financial condition
of the issuers of such securities and/or the protection afforded by the terms of
the securities themselves limit the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objectives and
policies.
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risk of loss of income and principal than higher rated
securities, investors should consider carefully the relative risks associated
with investments in securities which carry medium to lower ratings and in
comparable non-rated securities.
The investment adviser will perform its own investment analysis and will not
rely principally on the ratings assigned by the rating services, although such
ratings will be considered by the investment adviser. The investment adviser
will consider, among other things, the financial history and condition, the
prospects and the management of an issuer in selecting securities for the Fund's
portfolio.
Consistent with its primary investment objective, under normal conditions at
least 80% of the value of the Fund's total assets will be invested in the high
yield, medium to lower rated fixed-income securities previously described.
However, when prevailing economic conditions cause a narrowing of the spreads
between the yields derived from medium to lower rated or comparable non-rated
securities and those derived from higher rated issues, the Fund may invest in
higher rated fixed-income securities which provide similar yields but have less
risk. Fixed-income
8
<PAGE>
securities appropriate for the Fund may include both convertible and
nonconvertible debt securities and preferred stock. The Fund will not acquire
common stocks, except when attached to or included in a unit with fixed-income
securities which otherwise would be attractive to the Fund. Generally, the
Fund's average weighted maturity will range from 7 to 12 years. As of December
31, 1994, the Fund's average weighted maturity was 8.2 years.
The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received annually "phantom income." The Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain a zero coupon security until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods. See "Portfolio
Characteristics-Zero Coupon, Pay-in-Kind and Deferred Payment Securities" in the
Statement of Additional Information.
When market conditions dictate a more defensive investment strategy, the
Fund may invest temporarily in short-term obligations of, or securities
guaranteed by, the United States Government, its agencies or instrumentalities
or in high quality obligations of banks and corporations. The yield on these
securities will tend to be lower than the yield on other securities to be
purchased by the Fund. In addition, the Fund may on occasion lend portfolio
securities to brokers or dealers in corporate or governmental securities, banks
or other recognized institutional borrowers of securities and may invest up to
20% of its assets in United States currency denominated debt issues of foreign
governments and other foreign issuers and up to 10% of its total assets in
foreign currency denominated debt issues of foreign or domestic issuers. Such
investment strategies involve certain risks. See "Portfolio Characteristics" in
the Statement of Additional Information.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or unrated (i.e., high yield)
securities are more likely to react to developments affecting market and credit
risk than are more highly rated securities, which react primarily to movements
in the general level of interest rates. The investment adviser considers both
credit risk and market risk in making investment decisions for the Fund.
Investors should carefully consider the relative risks of investing in high
yield securities and understand that such securities are not generally meant for
short-term investing.
The amount of high yield securities outstanding proliferated in the 1980's
in conjunction with the increase in merger and acquisition and leveraged buyout
activity. Under adverse economic conditions, there is a risk that highly
leveraged issuers may be unable to service their debt obligations or to repay
their obligations upon maturity. In addition, the secondary market for high
yield securities, which is concentrated in relatively few market makers, may not
be as liquid as the secondary market for more highly rated securities. Under
adverse market or economic conditions, the secondary market for high yield
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, the investment adviser
could find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the Fund's
net asset value. Under circumstances where the Fund owns the majority of an
issue, market and credit risks may be greater.
9
<PAGE>
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's portfolio and increasing
the exposure of the Fund to the risks of high yield securities.
During the fiscal year ended December 31, 1994, the monthly dollar weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:
Percentage of Total
Ratings Investments
------- -------------------
AAA/Aaa -
AA/Aa -
A/A -
BBB/Baa .16%
BB/Ba 7.83%
B/B 77.00%
CCC/Caa 4.59%
CC/Ca .26%
C/C .05%
Unrated 7.08%
See "Investment Objective and Policies" in the Statement of Additional
Information.
OTHER INVESTMENTS AND POLICIES
Repurchase Agreements
The Fund may on occasion enter into repurchase agreements whereby the seller
of a security agrees to repurchase a security from the Fund at a mutually agreed
upon time and price. The period of maturity 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
security. The Fund's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and if the value of instruments declines, the Fund
will require additional collateral. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss. The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. pursuant to an
order of the Securities and Exchange Commission (SEC). See "Portfolio
Characteristics-Repurchase Agreements" in the Statement of Additional
Information.
Borrowing
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings.
However, the Fund will not purchase securities when borrowings exceed 5% of the
value of the Fund's total assets.
10
<PAGE>
Illiquid Securities
The Fund may invest 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. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (Securities Act), that have a readily available market would
not be 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 Directors. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period.
Restricted securities are sometimes referred to as private placement
securities. Such securities may be purchased directly from the issuer or in the
secondary market (Direct Placement Securities). The Fund will purchase Direct
Placement Securities when, in the opinion of the investment adviser, such
securities provide greater value due either to higher yields, attractive
technical features (such as call or refunding protection) or both.
Direct Placement Securities are subject to statutory or contractual
restrictions and delays on resale. Limitations on the resale of such securities
may have an adverse effect on their marketability, which may prevent the Fund
from disposing of them promptly at reasonable prices. The Fund may have to bear
the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration. At certain times, adverse
conditions in the public securities markets may preclude a public offering of an
issuer's securities.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objectives, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
- --------------------------------------------------------------------------------
HOW THE FUND IS MANAGED
- --------------------------------------------------------------------------------
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth below,
decides upon matters of general policy. The Fund's Manager conducts and
supervises the daily business operations of the Fund. The Fund's Subadviser
furnishes daily investment advisory services.
For the year ended December 31, 1994, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A, Class B and Class C
shares were .78%, 1.38% and 1.48% (annualized), respectively. See "Financial
Highlights."
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Fund and is compensated
for its services at an annual rate of .50 of 1% of the Fund's average daily net
assets up to and including $250 million, .475 of 1% of the next $500 million,
.45 of 1% of the next $750 million, .425 of 1% of the next $500 million, .40 of
1% of the next $500 million, .375 of 1% of the next $500 million and .35 of 1%
of the Fund's average daily net assets in excess of $3 billion. It was
incorporated in May 1987 under the laws of the State of Delaware. For the fiscal
year ended December 31, 1994, the Fund paid management fees to PMF of .42% of
the Fund's average net assets. See "Manager" in the Statement of Additional
Information.
As of January 31, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $45 billion.
11
<PAGE>
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory services
in connection with the management of the Fund and is reimbursed by PMF for its
reasonable costs and expenses incurred in providing such services. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
The current portfolio manager of the Fund is Lars M. Berkman, a Managing
Director of Prudential Investment Advisors, a unit of PIC. Mr. Berkman has
managed the Fund's portfolio since July 1991 and has been employed by PIC as a
portfolio manager since 1990. Prior thereto, he was with the Corporate Finance
Group (from 1989 to 1990) and the Financial Services Group (from 1987 to 1988)
of The Prudential Insurance Company of America (Prudential).
PMF and PIC are wholly-owned subsidiaries of Prudential, a major diversified
insurance and financial services company.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, is a corporation organized under the laws of the State of
Delaware and serves as the distributor of the Class A shares of the Fund. It is
a wholly-owned subsidiary of PMF.
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the distributor of the Class B and
Class C shares of the Fund. It is an indirect, wholly-owned subsidiary of
Prudential.
Under separate Distribution and Service Plans (the Class A Plan, the Class B
Plan and the Class C Plan, collectively, the Plans) adopted by the Fund under
Rule 12b-1 under the Investment Company Act and separate distribution agreements
(the Distribution Agreements), PMFD and Prudential Securities (collectively, the
Distributor) incur the expenses of distributing the Fund's Class A, Class B and
Class C shares, respectively. These expenses include commissions and account
servicing fees paid to, or on account of, financial advisers of Prudential
Securities and representatives of Pruco Securities Corporation (Prusec), an
affiliated broker-dealer, commissions and account servicing fees paid to, or on
account of, other broker-dealers or financial institutions (other than national
banks) which have entered into agreements with the Distributor, advertising
expenses, the cost of printing and mailing prospectuses to potential investors
and indirect and overhead costs of Prudential Securities and Prusec associated
with the sale of Fund shares, including lease, utility, communications and sales
promotion expenses. The State of Texas requires that shares of the Fund may be
sold in that state only by dealers or other financial institutions which are
registered there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
Under the Class A Plan, the Fund may pay PMFD for its distribution-related
activities with respect to Class A shares at an annual rate of up to .30 of 1%
of the average daily net assets of the Class A shares. The Class A Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class A shares
may be used to pay for personal service and/or the maintenance of shareholder
accounts (service fee) and (ii) total distribution fees (including the service
fee of .25 of 1%) may not exceed .30 of 1% of the average daily net assets of
the Class A shares. It is expected that
12
<PAGE>
in the case of Class A Shares, proceeds from the distribution fee will be used
primarily to pay account servicing fees to finanical advisers. PMFD has agreed
to limit its distribution-related fees payable under the Class A Plan to .15 of
1% of the average daily net assets of the Class A shares for the current fiscal
year ending December 31, 1995.
For the fiscal year ended December 31, 1994, PMFD received payments of
$248,276 under the Class A Plan. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal year ended December 31, 1994. PMFD also received
approximately $1,162,700 in initial sales charges.
Under the Class B and Class C Plans, the Fund may pay Prudential Securities
for its distribution-related activities with respect to Class B and Class C
shares at an annual rate of up to .75 of 1% and 1% of the average daily net
assets of the Class B and Class C shares, respectively. The Class B Plan
provides for the payment to Prudential Securities of (i) an asset-based sales
charge of up to .75 of 1% of the average daily net assets of the Class B shares
and (ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.75 of 1%. The Class C Plan provides for the payment to Prudential Securities of
(i) an asset-based sales charge of up to .75 of 1% of the average daily net
assets of the Class C shares, and (ii) a service fee of up to .25 of 1% of the
average daily net assets of the Class C shares. The service fee is used to pay
for personal service and/or the maintenance of shareholder accounts. Prudential
Securities has agreed to limit its distribution-related fees payable under the
Class C Plan to .75 of 1% of the average daily net assets of the Class C shares
for the fiscal year ending December 31, 1995. Prudential Securities also
receives contingent deferred sales charges from certain redeeming shareholders.
See "Shareholder Guide-How to Sell Your Shares-Contingent Deferred Sales
Charge."
For the fiscal year ended December 31, 1994, Prudential Securities incurred
distribution expenses of approximately $24,590,100 under the Class B Plan and
received $26,750,316 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $7,028,300 in contingent deferred
sales charges from redemption of Class B shares during this period. For the
period August 1 through December 31, 1994, Prudential Securities incurred
distribution expenses of approximately $32,700 under the Class C Plan and
received $8,870 from the Fund under the Class C Plan. In addition, Prudential
Securities received approximately $200 in contingent deferred sales charges from
redemptions of Class C shares during this period.
For the fiscal year ended December 31, 1994, the Fund paid distribution
expenses of .15%, .75% and .75% of the average net assets of the Class A, Class
B and Class C shares, respectively. The Fund records all payments made under the
Plans as expenses in the calculation of net investment income. Prior to the date
of this Prospectus, the Class A and Class B Plans operated as "reimbursement
type" plans and, in the case of Class B, provided for the reimbursement of
distribution expenses incurred in current and prior years. See "Distributor" in
the Statement of Additional Information.
Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the sales
of all shares of the Fund other than expenses allocable to a particular class.
The distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Fund.
The Fund will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers and other persons which
13
<PAGE>
distribute shares of the Fund. Such payments may be calculated by reference to
the net asset value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Fund, provided that the
commissions, fees or other remuneration it receives are fair and reasonable. See
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
From time to time Prudential Securities (and other affiliates of Prudential)
render investment banking services which may relate to or involve issuers of
securities held by the Fund or sought to be purchased or sold by the Fund.
Accordingly, Prudential Securities and its clients may have interests in actual
or potential conflict with the interests of the Fund. Under such circumstances,
the Manager will act in the best interests of the Fund without regard to the
interests of Prudential Securities or its clients.
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<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company (State Street or the Custodian), One
Heritage Drive, North Quincy, Massachusetts 02171, serves as Custodian for the
Fund's portfolio securities and cash and, in that capacity, maintains certain
financial and accounting books and records pursuant to an agreement with the
Fund. Its mailing address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Raritan
Plaza One, Edison, New Jersey 08837, serves as Transfer Agent and Dividend
Disbursing Agent and, in those capacities, maintains certain books and records
for the Fund. PMFS is a wholly-owned subsidiary of PMF. Its mailing address is
P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE FUND VALUES ITS SHARES
- --------------------------------------------------------------------------------
The Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Board of Directors has fixed the specific time of day for the computation of the
Fund's NAV to be as of 4:15 P.M., New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class may result in different
net asset values and dividends. As long as the Fund declares dividends daily,
the NAV of each class of shares will generally be the same. It is expected,
however, that the Fund's dividends will differ by approximately the amount of
the distribution-related expense accrual differential among the classes.
- --------------------------------------------------------------------------------
HOW THE FUND CALCULATES PERFORMANCE
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its "yield" and "total return"
(including "average annual" total return and "aggregate" total return) in
advertisements and sales literature. Yield and total return are calculated
separately for Class A, Class B and Class C shares. These figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then "annualized"; that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The "total
return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a
15
<PAGE>
hypothetical rate of return that, if achieved annually, would have produced the
same aggregate total return if performance had been constant over the entire
period. Average annual total return smooths out variations in performance and
takes into account any applicable initial or contingent deferred sales charges.
Neither "average annual" total return nor "aggregate" total return takes into
account any federal or state income taxes which may be payable upon redemption.
The Fund also may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include data from
Lipper Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. The Fund will include
performance data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder
Guide-Shareholder Services-Reports to Shareholders."
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Taxation of the Fund
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Fund will not be subject to federal income taxes on its net investment income
and capital gains, if any, that it distributes to its shareholders. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
Taxation of Shareholders
All dividends out of net investment income, together with distributions of
net short-term capital gains in excess of net long-term capital losses, will be
taxable as ordinary income to the shareholder whether or not reinvested. Any net
long-term capital gains (i.e., the excess of net long-term capital gains over
net short-term capital losses) distributed to shareholders will be taxable as
such to the shareholders, whether or not reinvested and regardless of the length
of time a shareholder has owned his or her shares. The maximum long-term capital
gains rate for individuals is currently 28%. The maximum long-term capital gains
rate for corporate shareholders is currently the same as the maximum tax rate
for ordinary income.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as a long-term
capital gain or loss if the shares have been held for more than one year and
otherwise as a short-term capital gain or loss. Any such loss, however, on
shares that are held for six months or less, will be treated as a long-term
capital loss to the extent of any capital gains distributions received by the
shareholder.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of Class
B or Class C shares for Class A shares constitutes a taxable event for federal
income tax purposes. However, such opinions are not binding on the Internal
Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.
Withholding Taxes
Under the Internal Revenue Code, the Fund is generally required to withhold
and remit to the U.S. Treasury 31% of dividends, capital gain distributions and
redemption proceeds payable to individuals and certain noncorporate shareholders
who fail to furnish correct tax identification numbers on IRS Form W-9 (or IRS
Form W-8 in the case of
16
<PAGE>
certain foreign shareholders). Withholding at this rate is also required from
dividends and capital gains distributions (but not redemption proceeds) payable
to shareholders who are otherwise subject to backup withholding. Dividends of
net investment income and net short-term capital gains payable to a foreign
shareholder will generally be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate).
Dividends and Distributions
The Fund expects to declare daily and pay monthly dividends based on actual
net investment income determined in accordance with generally accepted
accounting principles; however, a portion of such dividend may also include
projected net investment income. The Fund expects to make distributions at least
annually of any net capital gains, if any. Dividends paid by the Fund with
respect to each class of shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day and will be in
the same amount except that each class will bear its own distribution expenses,
generally resulting in lower dividends for Class B and Class C shares.
Distributions of net capital gains, if any, will be paid in the same amount for
each class of shares.
See "How the Fund Values its Shares."
Dividends and distributions will be paid in additional Fund shares based on
the net asset value of each class of Fund shares on the payment date and record
date, respectively, or such other date as the Board of Directors may determine,
unless the shareholder elects in writing not less than five business days prior
to the record date to receive such dividends and distributions in cash. Such
election should be submitted to Prudential Mutual Fund Services, Inc.,
Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. The Fund will notify each shareholder after the close of the Fund's
taxable year both of the dollar amount and the taxable status of that year's
dividends and distributions on a per share basis. If you hold shares through
Prudential Securities, you should contact your financial adviser to elect to
receive dividends and distributions in cash.
As of December 31, 1994 the Fund had a capital loss carryforward for federal
income tax purposes of $548,496,700. Accordingly, no capital gains distribution
is expected to be paid to shareholders until net gains have been realized in
excess of such carryforward amount.
To the extent that, in a given year, distributions to shareholders exceed
the Fund's current and accumulated earnings and profits, shareholders will
receive a return of capital in respect of such year and, in an annual statement,
will be notified of the amount of any return of capital for such year.
Any distributions of net capital gains paid shortly after a purchase by an
investor will have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the distributions. Such
distributions, although in effect a return of invested principal, are subject to
federal income taxes. Accordingly, prior to purchasing shares of the Fund, an
investor should carefully consider the impact of capital gains distributions
which are expected to be or have been announced.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on January 5, 1979. The Fund is
authorized to issue 3 billion shares of common stock, $.01 par value per share,
divided into three classes, designated Class A, Class B and Class C common
stock, which consists of 1 billion authorized Class A shares, 1 billion
authorized Class B shares and 1 billion authorized Class C shares. Each class of
common stock represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class bears different
distribution expenses, (ii) each class has exclusive voting rights with respect
to its distribution and service plan (except that the Fund has agreed with the
SEC in connection
17
<PAGE>
with the offering of a conversion feature on Class B shares to submit any
amendment of the Class A Plan to both Class A and Class B shareholders), (iii)
each class has a different exchange privilege and (iv) only Class B shares have
a conversion feature. See "How the Fund is Managed-Distributor." The Fund has
received an order from the SEC permitting the issuance and sale of multiple
classes of common stock. Currently, the Fund is offering only three classes,
designated Class A, Class B and Class C shares. In accordance with the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
The Board of Directors may increase or decrease the number of authorized
shares without approval by the shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide-How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except that, as noted above, each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debt and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders. The Fund's shares do not have cumulative voting
rights for the election of Directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% of the
Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec or
directly from the Fund through its Transfer Agent, Prudential Mutual Fund
Services, Inc., Attention: Investment Services, P.O. Box 15020, New Brunswick,
New Jersey 08906-5020. The minimum initial investment for Class A and Class B
shares is $1,000 and $5,000 for Class C shares. The minimum subsequent
investment is $100 for all classes. All minimum investment requirements are
waived for certain retirement and employee savings plans or custodial accounts
for the benefit of minors. For purchases through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. The
minimum initial investment requirement is waived for purchases of Class A shares
effected through an exchange of Class B shares of The BlackRock Government
Income Trust. See "Shareholder Services" below.
The purchase price is the net asset value per share next determined
following receipt of an order by the Transfer Agent or Prudential Securities
plus a sales charge which, at your option, may be imposed either (i) at the
18
<PAGE>
time of purchase (Class A shares) or (ii) on a deferred basis (Class B or Class
C shares). See "Alternative Purchase Plan" below. See also, "How the Fund Values
its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company,
Boston, Massachusetts, Custody and Shareholder Services Division, Attention:
Prudential High Yield Fund, Inc., specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B or Class C shares).
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential High Yield Fund,
Inc., Class A, Class B or Class C shares and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing Federal Funds. The minimum amount which may be invested by wire is
$1,000.
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and Class C
shares) which allows you to choose the most beneficial sales charge structure
for your individual circumstances given the amount of the purchase, the length
of time you expect to hold the shares and other relevant circumstances
(Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------ ----------------------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 4% .30 of 1% (Currently Initial sales charge waived or
of the public offering price being charged at reduced for certain purchases
a rate of .15 of 1%)
Class B Maximum contingent deferred sales .75 of 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser approximately seven years after
of the amount invested or the purchase
redemption proceeds; declines to
zero after six years
Class C Maximum CDSC of 1% of the lesser 1% (Currently being Shares do not convert to another
of the amount invested or the charged at a rate of class
redemption proceeds on .75 of 1%)
redemptions made within one year
of purchase
</TABLE>
19
<PAGE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information-Description of Common Stock)", and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares automatically
convert to Class A shares approximately seven years after purchase (see
"Conversion Feature-Class B Shares" below.).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 4% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
shold consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for more than 6 years, you should
consider purchasing Class A shares over either Class B or Class C shares
regardless of whether or not you qualify for a reduced sales charge on Class A
shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.
All purchases of $1 million or more, either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A
shares. See "Reduction and Waiver of Initial Sales Charges" below.
Class A Shares
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
20
<PAGE>
Sales Charge as Sales Charge as Dealer Concession
Percentage of Percentage of as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- ------------------ -------------- --------------- --------------
Less than $50,000 ...... 4.00% 4.17% 3.75%
$50,000 to $99,999 ..... 3.50% 3.63% 3.25%
$100,000 to $249,999 ... 2.75% 2.83% 2.50%
$250,000 to $499,999 ... 2.00% 2.04% 1.90%
$500,000 to $999,999 ... 1.50% 1.52% 1.40%
$1,000,000 and above ... None None None
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
Reduction and Waiver of Initial Sales Charges. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares-Reduction and Waiver of Initial Sales Charges-Class A Shares" in the
Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) or
1,000 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
record keeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.
Prudential Vista Program. Class A shares are offered at net asset value to
certain qualified employee retirement benefit plans under section 401 of the
Internal Revenue Code of 1986, as amended, for which Prudential Defined
Contribution Services serves as the recordkeeper provided that such plan is also
participating in the Prudential Vista Program (PruVista Plan), and provided
further that (i) for existing plans, the plan has existing assets of at least $1
million and at least 100 eligible employees or participants, and (ii) for new
plans, the plan has at least 500 eligible employees or participants. The term
"exisiting assets" for this purpose includes transferable cash and GICs
(guaranteed investment contracts) maturing within 4 years.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruVista Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
Directors and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF and their subsidiaries and members of
the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
permitted by such persons's employer and (e) investors
21
<PAGE>
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 90 days of the commencement of the financial adviser's employment at
Prudential Securities, (ii) the purchase is made with proceeds of a redemption
of shares of any open-end, non-money market fund sponsored by the financial
adviser's previous employer (other than a fund which imposes a distribution or
service fee of .25 of 1% or less) and (iii) the financial adviser served as the
client's broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or waiver
of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares purchased upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares-Reduction and Waiver of Initial
Sales Charges-Class A Shares" in the Statement of Additional Information.
Class B and Class C Shares
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
You can redeem your shares at any time for cash at NAV next determined after
the redemption request is received in proper form by the Transfer Agent or
Prudential Securities. See "How the Fund Values its Shares." In certain cases,
however, redemption proceeds will be reduced by the amount of any applicable
contingent deferred sales charge, as described below. See "Contingent Deferred
Sales Charges" below.
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares by contacting your Prudential Securities financial adviser.
If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent in order to be redeemed,
which may delay receipt of the proceeds for the redemption request to be
processed. If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power, must be guaranteed by
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker, dealer or credit union. The Transfer Agent reserves
the right to request additional information from, and make reasonable inquiries
of, any eligible guarantor institution. For clients of Prusec, a signature
guarantee may be obtained from the agency or office manager of most Prudential
Insurance and Financial Services or Preferred Services offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or written
request except as indicated below. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of
22
<PAGE>
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during any other period when the SEC, by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has been
honored, up to 10 calendar days from the time of receipt of the purchase check
by the Transfer Agent. Such delay may be avoided by purchasing shares by wire or
by certified or official bank check.
Redemption in Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, 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 net asset value
of the Fund during any 90-day period for any one shareholder.
Involuntary Redemption. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any 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. No sales charge will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised, that you are entitled
to credit for the contingent deferred sales charge previously paid. Exercise of
the repurchase privilege will generally not affect federal income tax treatment
of any gain realized upon redemption. If the redemption resulted in a loss, some
or all of the loss, depending on the amount reinvested, will generally 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 one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the amount of
all payments by you for shares during the preceding six years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares acquired
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any CDSC will be paid to and retained by the Distributor. See "How
the Fund is Managed-Distributor" and "Waiver of the Contingent Deferred Sales
Charges-Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to
23
<PAGE>
have been made on the last day of the month. The CDSC will be calculated from
the first day of the month after the initial purchase, excluding the time
shares were held in a money market fund. See "How to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales
Charge as a Percentage
Year Since Purchase of Dollars Invested or
Payment Made Redemption Proceeds
- ------------------- -------------------------
First ...................................................... 5.0%
Second ..................................................... 4.0%
Third ...................................................... 3.0%
Fourth ..................................................... 2.0%
Fifth ...................................................... 1.0%
Sixth ...................................................... 1.0%
Seventh .................................................... None
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years
(five years for Class B shares purchased prior to January 22, 1990); then of
amounts representing the cost of shares held beyond the applicable CDSC period;
then of amounts representing the cost of shares acquired prior to July 1, 1985;
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 net
asset value had appreciated to $12 per share, the value of your Class B shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
Waiver of the Contingent Deferred Sales Charges-Class B shares. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust, 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 the shares were purchased prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59-1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
24
<PAGE>
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC and provide the Transfer Agent with such
supporting documentation as it may deem appropriate. The waiver will be granted
subject to confirmation of your entitlement. See "Purchase and Redemption of
Fund Shares-Waiver of the Contingent Deferred Sales Charge-Class B Shares" in
the Statement of Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares-Quantity
Discount-Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
CONVERSION FEATURE-CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. It is currently anticipated that
conversions will occur during the months of February, May, August and November.
Conversions will be effected at relative net asset value without the imposition
of any additional sales charge. The first conversion of Class B shares occurred
in February 1995, when the conversion feature was first implemented.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
shares than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
25
<PAGE>
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund, you have an exchange privilege with certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject to the minimum investment requirement of such funds. Class A,
Class B and Class C shares may be exchanged for Class A, Class B and Class C
shares, respectively, of another fund on the basis of the relative NAV. No sales
charge will be imposed at the time of the exchange. Any applicable CDSC payable
upon the redemption of shares exchanged will be calculated from the first day of
the month after the initial purchase, excluding the time shares were held in a
money market fund. Class B and Class C shares may not be exchanged into money
market funds other than the Prudential Special Money Market Fund. For purposes
of calculating the holding period applicable to the Class B conversion feature,
the time period during which Class B shares were held in a money market fund
will be excluded. See "Conversion Feature-Class B Shares" above. An exchange
will be treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account-Exchange Privilege" in the Statement of Additional
Information.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.
If you hold shares through Prudential Securities you must exchange your
shares by contacting your Prudential Securities financial adviser. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be returned in order for the shares to be exchanged. See "How
to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services, Inc., at the address noted above.
Special Exchange Privilege. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales
26
<PAGE>
Charges" above. 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 on a
quarterly basis, unless the shareholder elects otherwise. It is currently
anticipated that this exchange will occur quarterly in February, May, August and
November. Eligibility for this exchange privilege will be calculated on the
business day prior to the date of the exchange. Amounts representing Class B or
Class C shares which are not subject to a CDSC include the following: (1)
amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities or Prusec that they are eligible for this special exchange
privilege.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
*Automatic Reinvestment of Dividends and/or Distributions Without a Sales
Charge. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold your shares
through Prudential Securities, you should contact your financial adviser.
*Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
*Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
*Systematic Withdrawal Plan. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-Contingent Deferred Sales Charges."
*Reports to Shareholders. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Fund will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.
*Shareholder Inquiries. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone at (800) 225-1852 (toll
free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
27
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
- --------------------------------------------------------------------------------
Moody's Investors Service Corporate Bond Ratings:
Aaa-Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, the modifier 2 indicates a mid-range rating and the
modifier 3 indicates that the issue ranks at the lower end of the rating
category.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa-Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-1
<PAGE>
Standard & Poor's Ratings Group corporate bond ratings:
AAA-Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation and indicate an extremely strong capacity to pay principal and
interest.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A-Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
A-2
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Fund at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
- --------------------------------------------------------------------------------
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
* Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
* Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
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 Securities Fund
Command Tax-Free Fund
* Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
B-1
<PAGE>
No dealer, sales representative or any other person has
been authorized to give any information or to make any
representations, other than those contained in this
Prospectus, in connection with the offer contained
herein, and, if given or made, such other information or
representations must not be relied upon as having been
authorized by the Fund or the Distributor. This
Prospectus does not constitute an offer by the Fund or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS.............................. 2
Risk Factors and Special Characteristics .. 2
FUND EXPENSES................................ 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE FUND INVESTS......................... 8
Investment Objective and Policies.......... 8
Risk Factors Relating to
Investing in High Yield Securities ...... 9
Other Investments and Policies............. 10
Investment Restrictions.................... 11
HOW THE FUND IS MANAGED...................... 11
Manager.................................... 11
Distributor................................ 12
Portfolio Transactions..................... 14
Custodian and Transfer and
Dividend Disbursing Agent................ 15
HOW THE FUND VALUES ITS SHARES............... 15
HOW THE FUND CALCULATES PERFORMANCE.......... 15
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 16
GENERAL INFORMATION.......................... 17
Description of Common Stock................ 17
Additional Information..................... 18
SHAREHOLDER GUIDE............................ 18
How to Buy Shares of the Fund.............. 18
Alternative Purchase Plan.................. 19
How to Sell Your Shares.................... 22
Conversion Feature--Class B Shares ........ 25
How to Exchange Your Shares................ 26
Shareholder Services....................... 27
DESCRIPTION OF CORPORATE BOND RATINGS .......A-1
THE PRUDENTIAL MUTUAL FUND FAMILY............B-1
________________________________________________
MF110A 4400096
________________________________________________
Class A: 74435F-10-6
CUSIP Nos.: Class B: 74435F-20-5
Class B: 74435F-30-4
________________________________________________
Prudential
High Yield
Fund, Inc.
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
PROSPECTUS
February 28, 1995
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Additional Information
February 28, 1995
Prudential High Yield Fund, Inc. (the Fund), is an open-end diversified
management investment company whose primary investment objective is to maximize
current income through Investment in a diversified portfolio of high yield
fixed-income securities. Capital appreciation is a secondary investment
objective which will only be sought when consistent with the primary objective.
The high yield securities sought by the Fund will generally be securities rated
in the medium to lower categories by recognized rating services (Baa or lower by
Moody's Investors Service or BBB or lower by Standard & Poor's Ratings Group) or
non-rated securities of comparable quality. Generally, the Fund will not invest
in securities rated below B by both of these services. There can be no assurance
that the Fund's investment objectives will be achieved. See "Investment
Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, 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 Fund's Prospectus, dated February 28, 1995, a copy
of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus
---- ---------------
General Information .................................. B-2 17
Investment Objective and Policies .................... B-2 8
Portfolio Characteristics ............................ B-2 10
Investment Restrictions .............................. B-5 11
Directors and Officers ............................... B-6 11
Manager .............................................. B-9 11
Distributor .......................................... B-11 12
Portfolio Transactions and Brokerage ................. B-13 14
Purchase and Redemption of Fund Shares ............... B-14 18
Shareholder Investment Account ....................... B-16 27
Net Asset Value ...................................... B-19 15
Taxes, Dividends and Distributions ................... B-20 16
Performance Information .............................. B-21 15
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants ........................ B-23 15
Financial Statements ................................. B-24 -
Report of Independent Accountants .................... B-43 -
- --------------------------------------------------------------------------------
MF110B 4440084
<PAGE>
GENERAL INFORMATION
At a special meeting held on July 19, 1994, shareholders approved an
amendment to the Fund's Articles of Incorporation to change the Fund's name from
Prudential-Bache High Yield Fund, Inc. to Prudential High Yield Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The primary investment objective of the Fund is to maximize current income
through investment in a diversified portfolio of high yield fixed-income
securities which in the opinion of the Fund's investment adviser do not subject
a fund investing in such securities to unreasonable risks. As a secondary
investment objective, the Fund will seek capital appreciation but only when
consistent with its primary objective. Capital appreciation may result, for
example, from an improvement in the credit standing of an issuer whose
securities are held in the Fund's portfolio or from a general lowering of
interest rates, or a combination of both. Conversely, capital depreciation may
result, for example, from a lowered credit standing or a general rise in
interest rates, or a combination of both. The achievement of the Fund's
objectives will depend upon the investment adviser's analytical and portfolio
management skills. There can be no assurance that these objectives will be
achieved. All investment objectives and policies of the Fund other than those
described under "How the Fund Invests-Investment Restrictions" may be changed by
the Board of Directors of the Fund without shareholder approval.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which the Fund may
invest, the yields and prices of such securities may tend to fluctuate more than
those for higher rated securities. In the lower quality segments of the
fixed-income securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed-income securities market
resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in the Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investments in securities which carry medium to lower ratings
and in comparable non-rated securities. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The investment
adviser will attempt to reduce these risks through diversification of the
portfolio and by analysis of each issuer and its ability to make timely payments
of income and principal, as well as broad economic trends in corporate
developments.
Certain of the high fixed-income securities in which the Fund may invest may
be purchased at a market discount. The Fund does not intend to hold such
securities until maturity unless current yields on these securities remain
attractive. Capital losses may be recognized when securities purchased at a
premium are held to maturity or are called or redeemed at a price lower than
their purchase price. Capital gains or losses also may be recognized for federal
income tax purposes on the retirement of such securities or may be recognized
upon the sale of securities.
PORTFOLIO CHARACTERISTICS
When market conditions dictate a more "defensive" investment strategy, the
Fund may invest temporarily without limit in high quality money market
instruments, including commercial paper of corporations organized under the laws
of any state or political subdivision of the United States, certificates of
deposit, bankers' acceptances and other obligations of domestic banks, including
foreign branches of such banks, having total assets of at least $1 billion,
obligations of foreign banks subject to the limitations set forth in Investment
Restriction No. 16 and obligations issued or guaranteed by the United States
Government, its instrumentalities or agencies. The yield on these securities
will tend to be lower than the yield on other securities to be purchased by the
Fund.
The Fund may also employ, in its discretion, the following strategies in
order to help achieve its primary investment objective of maximizing current
income.
B-2
<PAGE>
Zero Coupon, Pay-In-Kind and Deferred Payment Securities
The Fund may invest in zero coupon, pay-in-kind and deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received annually "phantom income." The Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain a zero coupon security until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals.
There are certain risks related to investing in zero coupon, pay-in-kind and
deferred payment securities. These securities generally are more sensitive to
movements in interest rates and are less liquid than comparably rated securities
paying cash interest at regular intervals. Consequently, such securities may be
subject to greater fluctuation in value. During a period of severe market
conditions, the market for such securities may become even less liquid. In
addition, as these securities do not pay cash interest, the Fund's investment
exposure to these securities and their risks, including credit risk, will
increase during the time these securities are held in the Fund's portfolio.
Further, to maintain its qualification for pass-through treatment under the
federal tax laws, the Fund is required to distribute income to its shareholders
and, consequently, may have to dispose of its portfolio securities under
disadvantageous circumstances to generate the cash, or may have to leverage
itself by borrowing the cash to satisfy these distributions, as they relate to
the distribution of "phantom income" and the value of the paid-in-kind interest.
The required distributions will result in an increase in the Fund's exposure to
such securities.
Repurchase Agreements
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The Fund's investment adviser will monitor the creditworthiness of such parties,
under the general supervision of the Board of Directors. In the event of a
default or bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer the loss.
The Fund participates in a joint repurchase agreement account with other
investment companies managed by Prudential Mutual Fund Management, Inc. (PMF)
pursuant to an order of the Securities and Exchange Commission (SEC). On a daily
basis, any uninvested cash balances of the Fund may be aggregated with those of
such other investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the joint
account based on the percentage of its investment.
Lending of Securities
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities in any amount to brokers, dealers and financial
institutions, provided that such loans are callable at any time by the Fund and
are at all times secured by cash or equivalent collateral that is equal to at
least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the interest and
dividends on the loaned securities, while at the same time earning interest on
the collateral which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by
the 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 even 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 deemed by the
investment adviser to be creditworthy. 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.
B-3
<PAGE>
When-Issued and Delayed Delivery Securities
From time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis-i.e., delivery and payment
can take place a month or more after the date of the transaction. The purchase
price and the interest rate payable on the securities are fixed on the
transaction date. The securities so purchased are subject to market fluctuation,
and no interest accrues to the Fund until delivery and payment take place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction and thereafter reflect
the value of such securities in determining its net asset value each day. The
Fund will make commitments for such when-issued transactions only with the
intention of actually acquiring the securities, and to facilitate such
acquisitions, the Fund's custodian bank will maintain, in a separate account of
the Fund, portfolio securities having value equal to or greater than such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the separate
account and/or from then available cash flow. If the Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of other portfolio obligations, incur a gain or loss due
to market fluctuation.
Securities of Foreign Issuers
The Fund may invest up to 20% of its total assets in United States currency
denominated debt issues of foreign governments and other foreign issuers.
The Fund believes that in many instances such foreign debt securities may
provide higher yields than securities of domestic issuers which have similar
maturities and quality. Many of these investments currently enjoy increased
liquidity, although, under certain market conditions, such securities may be
less liquid than the securities of United States corporations, and are certainly
less liquid than securities issued or guaranteed by the United States
Government, its instrumentalities or agencies.
The above-described foreign investments involve certain risks, which should
be considered carefully by an investor in the Fund. These risks include
political or economic instability in the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities issued by United States corporations or issued or
guaranteed by the United States Government, its instrumentalities or agencies.
In addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States, and, with respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation or
diplomatic developments which could affect investment in those countries.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for the Fund to obtain or to enforce a judgment against the
issuers of such securities.
The Fund may also invest up to 10% of its total assets in foreign currency
denominated debt securities of foreign or domestic issuers; however, the Fund
will not engage in such investment activity unless it has been first authorized
to do so by its Board of Directors. In addition to the risks listed in the
preceding paragraph with respect to debt securities of foreign issuers, foreign
currency denominated securities may be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, and costs may be
incurred in connection with conversions between various currencies. It may not
be possible to hedge against the risks of currency fluctuations.
Illiquid Securities
The Fund may not invest more than 15% of its net assets in repurchase
agreements which have a maturity longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible
B-4
<PAGE>
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
Portfolio Turnover
Although the Fund does not intend to engage in substantial short-term
trading, it may sell portfolio securities without regard to the length of time
that they have been held in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions or the financial
condition of the issuer. It is not anticipated that the Fund's portfolio
turnover rate will exceed 150%. Since the Fund's inception, the annual portfolio
turnover rate has not exceeded 100%. A portfolio turnover rate of 150% may
exceed that of other investment companies with similar objectives. The portfolio
turnover rate is computed by dividing the lesser of the amount of the securities
purchased or securities sold (excluding securities whose maturities at
acquisition were one year or less) by the average monthly value of securities
owned during the year. A 100% turnover rate would occur, for example, if all of
the securities held in the Fund's portfolio were sold and replaced within one
year. However, when portfolio changes are deemed appropriate due to market or
other conditions, such turnover rate may be greater than anticipated. A higher
rate of turnover results in increased transaction costs to the Fund. For the
fiscal years ended December 31, 1993 and 1994, the Fund's portfolio turnover
rate was 85% and 74%, respectively.
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 the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
The Fund may not:
(1) Invest in any non-fixed-income equity securities, including warrants,
except when attached to or included in a unit with fixed-income securities.
(2) Invest more than 5% of the market or other fair value of its total
assets in the securities of any one issuer (other than obligations of, or
guaranteed by, the United States Government, its agencies or instrumentalities).
(3) Purchase more than 10% of the voting securities of any issuer.
(4) Invest more than 25% of the market or other fair value of its total
assets in the securities of issuers, all of which conduct their principal
business activities in the same industry. For purposes of this restriction, gas,
electric, water and telephone utilities will each be treated as being a separate
industry. This restriction does not apply to obligations issued or guaranteed by
the United States Government or its agencies or instrumentalities.
(5) Make short sales of securities.
(6) Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of purchases and sales of portfolio securities.
B-5
<PAGE>
(7) Invest more than 5% of the market or other fair value of its total
assets in securities of companies having a record, together with predecessors,
of less than three years of continuous operation. This restriction shall not
apply to any obligation of, or guaranteed by, the United States Government, its
agencies or instrumentalities.
(8) Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to 20% of the value of its total assets (calculated when
the loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. Secured borrowings may take the form of
reverse repurchase agreements, pursuant to which the Fund would sell portfolio
securities for cash and simultaneously agree to repurchase them at a specified
date for the same amount of cash plus an interest component. For purposes of
this restriction, obligations of the Fund to Directors pursuant to deferred
compensation arrangements and the purchase and sale of securities on a
when-issued or delayed delivery basis are not deemed to be the issuance of a
senior security or a pledge of assets.
(9) Engage in the underwriting of securities except insofar as the Fund may
be deemed an underwriter under the Securities Act in disposing of a portfolio
security.
(10) Purchase or sell real estate or real estate mortgage loans, although it
may purchase marketable securities of issuers which engage in real estate
operations or securities which are secured by interests in real estate.
(11) Purchase or sell commodities or commodity futures contracts.
(12) Make loans of money or securities, except (a) by investment in
repurchase agreements (see "Portfolio Characteristics-Repurchase Agreements") or
(b) by lending its portfolio securities, subject to limitations described
elsewhere in the Prospectus and this Statement of Additional Information (see
"Portfolio Characteristics-Lending of Securities"). The purchase of a portion of
an issue of publicly-distributed debt securities is not considered the making of
a loan.
(13) Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in the
securities of companies which invest in or sponsor such programs.
(14) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(15) Invest for the purpose of exercising control or management of another
company.
(16) Invest more than 20% of the market or other fair value of its total
assets in United States currency denominated issues of foreign governments and
other foreign issuers; or invest more than 10% of the market or other fair value
of its total assets in securities which are payable in currencies other than
United States dollars. The Fund will not engage in investment activity in
non-U.S. dollar denominated issues without first obtaining authorization to do
so from its Board of Directors. See "Portfolio Characteristics-Securities of
Foreign Issuers."
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
In order to comply with certain state "blue sky" restrictions, the Fund will
not, as a matter of operating policy:
1. Purchase the securities of any one issuer if, to the knowledge of the
Fund, any officer or director of the Fund or the Manager or Subadviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers
and directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer.
2. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities of
issuers which are restricted as to disposition, if more than 15% of its total
assets would be invested in such securities. This restriction shall not apply to
mortgage-backed securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Delayne Dedrick Gold (56) Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, New York
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Arthur Hauspurg (69) Director Trustee and former President, Chief Executive Officer and
c/o Prudential Mutual Fund Chairman of the Board of Consolidated Edison Company
Management, Inc. of New York, Inc.; Director of COMSAT Corp.
One Seaport Plaza
New York, New York
*Harry A. Jacobs, Jr. (73) Director Senior Director (since January 1986) of Prudential Securi-
One Seaport Plaza ties Incorporated (Prudential Securities); formerly
New York, New York Interim Chairman and Chief Executive Officer of
Prudential Mutual Fund Management, Inc. (PMF), (June-
September 1993); Chairman of the Board of Prudential
Securities (1982-1985) and Chairman of the Board and
Chief Executive Officer of Bache Group Inc. (1977-1982);
Trustee of the Trudeau Institute; Director of the Center for
National Policy, The First Australia Fund, Inc., The First
Australia Prime Income Fund, Inc., The Global Govern-
ment Plus Fund, Inc. and The Global Total Return Fund,
Inc.
*Lawrence C. McQuade (67) President and Vice Chairman of PMF (since 1988); Managing Director,
One Seaport Plaza Director Investment Banking, Prudential Securities (1988-
New York, New York 1991); Director of Czech and Slovak American
Enterprise Fund (since October 1994), Quixote Corpora-
tion (since February 1992) and BUNZL, PLC (since June
1991); formerly Director of Crazy Eddie Inc. (1987-1990)
and KaiserTech, Ltd., Kaiser Aluminum and Chemical
Corp. (March 1987-November 1988); formerly Executive
Vice President and Director of WR Grace & Company;
President and Director of The Global Government Plus
Fund, Inc., The Global Total Return Fund, Inc. and The
High Yield Income Fund, Inc.
Stephen P. Munn (52) Director Chairman (since January 1994), Director and President
101 So. Salina St. (since 1988) and Chief Executive Officer (1988-
Syracuse, New York December 1993) of Carlisle Companies Incorporated.
*Richard A. Redeker (51) Director President, Chief Executive Officer and Director (since
One Seaport Plaza October 1993); Prudential Mutual Fund Management,
New York, New York Inc. (PMF); Executive Vice President, Director and
Member of the Operating Committee (since October
1993) of Prudential Securities; Director (since October
1993) of Prudential Securities Group, Inc. (PSG); Execu-
tive Vice President, The Prudential Investment
Corporation (since July 1994); Director (since January
1994) of Prudential Mutual Fund Distributors, Inc.
(PMFD) and Prudential Mutual Fund Services, Inc.
(PMFS); Formerly Senior Executive Vice President
and Director of Kemper Financial Services, Inc.
(September 1978-September 1993); Director of The Global
Government Plus Fund, Inc., The Global Total Return Fund,
Inc. and The High Yield Income Fund, Inc.
B-7
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Louis A. Weil, III (53) Director Publisher and Chief Executive Officer, Phoenix Newspa-
Phoenix Newspapers, Inc. pers, Inc. (since August 1991); Director of Central
120 E. Van Buren Newspapers, Inc. (since September 1991); prior thereto,
Phoenix, Arizona Publisher of Time Magazine (May 1989-March 1991);
formerly President, Publisher and Chief Executive Officer
of The Detroit News (February 1986-August 1989); for-
merly member of the Advisory Board, Chase Manhattan
Bank-Westchester; Director of The Global Government
Plus Fund, Inc.
David W. Drasnin (58) Vice President Vice President and Branch Manager of Prudential
39 Public Square, Suite 500 Securities.
Wilkes-Barre, Pennsylvania
Robert F. Gunia (48) Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989), Executive Vice President,
New York, New York Treasurer and Chief Financial Officer (since June
1987) of PMF; Senior Vice President (since March
1987) of Prudential Securities; Executive Vice
President, Treasurer and Comptroller (since March 1991)
of PMFD and Director (since June 1987) of PMFS; Vice
President and Director (since May 1989) of The Asia
Pacific Fund, Inc.
Grace Torres (35) Treasurer and First Vice President (since March 1994) of PMF; First
One Seaport Plaza Principal Financial Vice President (since March 1994) of PSI. Prior
New York, New York and Accounting thereto, Vice President, Bankers Trust Company.
Officer
S. Jane Rose (49) Secretary Senior Vice President (since January 1991), Senior Coun-
One Seaport Plaza sel (since June 1987) and First Vice President
New York, New York (June 1987-December 1990) of PMF; Senior Vice
President and Senior Counsel of Prudential Securities
(since July 1992); formerly Vice President and Associate
General Counsel of Prudential Securities.
Ronald Amblard (36) Assistant First Vice President (since January 1994) and Associate
One Seaport Plaza Secretary General Counsel (since January 1992) of PMF; Vice
New York, New York President and Associate General Counsel of Prudential
Securities (since January 1992); formerly, Assistant
General Counsel (August 1988-December 1991),
Associate Vice President (January 1989-December
1990) and Vice President (January 1991-December
1993) of PMF.
</TABLE>
- ---------------
* "Interested" director, as defined in the Investment Company Act by reason of
his affiliation with Prudential Securities or PMF.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities Incorporated or Prudential Mutual Fund Distributors, Inc.
The officers conduct and supervise the daily business operations of the
Fund, while the directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its directors who is not an affiliated person of PMF
or The Prudential Investment Corporation (PIC) annual compensation of $9,000, in
addition to certain out-of-pocket expenses. The Chairman of the Audit Committee
receives an additional $200 per year.
Directors may receive their Director's fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fee in installments which accrue interest at
a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
Bills at the beginning of each calendar quarter or, pursuant to an SEC exemptive
order, at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and
B-8
<PAGE>
accruals become payable at the option of the Director. The Fund's obligation to
make payments of deferred Director's fees, together with interest thereon, is a
general obligation of the Fund.
Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Directors of the Fund who are affiliated persons of the
Manager.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1994 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's board and that of all other funds managed by
Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1994.
Compensation Table
------------------
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From Fund
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement To Directors
- ----------------- ------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Delayne Dedrick Gold-Director $9,200 None N/A $185,000(24)*
Arthur Hauspurg-Director $9,000 None N/A $ 37,500(5)*
Stephen P. Munn-Director $9,000 None N/A $ 40,000(6)*
Louis A. Weil, III-Director $9,000 None N/A $ 97,500(12)*
- -----------------
*Indicates number of funds in Fund Complex (including the Fund) to which
aggregate compensation relates.
As of February 3, 1995, the directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
As of February 3, 1995, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of beneficial interest were:
John Hill Duncan & Janet Bean Duncan, 2887 Kerrisdale Ridge Drive, Medford, OR,
who held 36,274 Class C shares (5%).
As of February 3, 1995, Prudential Securities was the record holder for
other beneficial owners of 48,553,910 Class A shares (or 36% of the outstanding
Class A shares), 148,193,464 Class B shares (or 46% of the outstanding Class B
shares) and 546,259 Class C shares (or 80% of the outstanding Class C shares) of
the Fund. In the event of any meetings of shareholders, Prudential Securities
will forward, or cause the forwarding of, proxy materials to the beneficial
owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to substantially all of the other investment companies that, together with the
Fund, comprise the "Prudential Mutual Funds." See "How the Fund is Managed" in
the Prospectus. As of January 31, 1995, PMF managed and/or administered open-end
and closed-end management investment companies with assets of approximately $45
billion. According to the Investment Company Institute, as of April 30, 1994,
Prudential Mutual Funds were the 12th largest family of mutual funds in the
United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and Prudential Mutual Fund Services, Inc.
(PMFS or the Transfer Agent), the Fund's transfer and dividend disbursing agent.
The management services of PMF for the Fund are not exclusive under the terms of
the Management Agreement and PMF is free to, and does, render management
services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .50 of 1% of the Fund's average daily net assets up to and
including $250 million, .475 of 1% of the next $500 million, .45 of 1% of the
next $750 million, .425 of 1% of the next $500 million, .40 of 1% of the next
$500 million, .375 of 1% of the next $500 million and .35 of 1% over $3 billion
of the Fund's average daily net assets. The fee is computed daily and payable
monthly. The Management Agreement also provides that, in the event the expenses
of the Fund (including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due to PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid by
PMF to the Fund. No such reductions were required during the fiscal year ended
December 31, 1994. Currently, the Fund believes that the most
B-9
<PAGE>
restrictive expense limitation of state securities commissions is 2-1/2% of the
Fund's average daily net assets up to $30 million, 2% of the next $70 million of
such assets and 1-1/2% of such assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of 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
(PIC) pursuant to the subadvisory agreement between PMF and PIC (the Subadvisory
Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC, registering
the Fund and qualifying its shares under state securities laws, including the
preparation and printing of the Fund's registration statements and prospectuses
for such purposes, (k) allocable communications expenses with respect to
investor services and all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders in the amount necessary for distribution to the shareholders, (l)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business and (m) distribution
fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors of the Fund, including a majority of
the Directors who are not parties to the contract or interested persons of any
such party as defined in the Investment Company Act on May 2, 1994 and by
shareholders of the Fund on April 28, 1988.
For the fiscal years ended December 31, 1992, 1993 and 1994, the Fund paid
PMF a management fee of $11,740,190, $14,885,200 and $15,562,791, respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser), a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
PIC will furnish investment advisory services in connection with the management
of the Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of such services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on May 2, 1994, and by shareholders of the Fund on April 28, 1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.
The Manager and the Subadviser are wholly-owned subsidiaries of The
Prudential Insurance Company of America (Prudential) which, as of December 31,
1993, was one of the largest financial institutions in the world and the largest
insurance company in North America. Prudential has been engaged in the insurance
business since 1875. In July 1994, Institutional Investor ranked Prudential the
second largest institutional money manager of the 300 largest money management
organizations in the United States as of December 31, 1993.
B-10
<PAGE>
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities Incorporated (Prudential Securities or PSI), One Seaport
Plaza, New York, New York 10292, acts as the distributor of the Class B and
Class C 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 separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively, the Distributor) serve as distributor of the Fund's Class A,
Class B and Class C shares. See "How the Fund is Managed-Distributor" in the
Prospectus.
Prior to January 22, 1990, the Fund offered only one class of shares (the
then existing Class B shares). On October 6, 1989, the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Class A Plan or Class B Plan or in any agreement related to either Plan (the
Rule 12b-1 Directors), at a meeting called for the purpose of voting on each
Plan, adopted a new plan of distribution for the Class A shares of the Fund (the
Class A Plan) and approved an amended and restated plan of distribution with
respect to the Class B shares of the Fund (the Class B Plan). On February 28,
1993, the Board of Directors, including a majority of the Rule 12b-1 Directors,
at a meeting called for the purpose of voting on each Plan, approved
modifications to the Fund's Class A and Class B Plans and Distribution
Agreements to conform them to recent amendments to the National Association of
Securities Dealers, Inc. (NASD) maximum sales charge rule described below. As so
modified, the Class A Plan provides that (i) up to .25 of 1% of the average
daily net assets of the Class A shares may be used to pay for personal service
and the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1%. As so modified, the Class B Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class B shares may be paid as a service fee and
(ii) up to .75 of 1% (including the service fee) of the average daily net assets
of the Class B shares (asset-based sales charge) may be used as reimbursement
for distribution-related expenses with respect to the Class B shares. On May 3,
1993, the Board of Directors, including a majority of the Rule 12b-1 Directors,
at a meeting called for the purpose of voting on each Plan, adopted a plan of
distribution for the Class C shares of the Fund and approved further amendments
to the plans of distribution for the Fund's Class A and Class B shares changing
them from reimbursement type plans to compensation type plans. The plans were
last approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on May 2, 1994. The Class A Plan, as amended, was approved by the
Class A and Class B shareholders and the Class B Plan, as amended, was approved
by Class B shareholders on July 19, 1994. The Class C Plan was approved by the
sole shareholder of Class C shares on August 1, 1994.
Class A Plan. For the fiscal year ended December 31, 1994, PMFD received
payments of approximately $248,276 under the Class A Plan. This amount was
primarily expended on commission credits to Prudential Securities and Prusec for
payment of account servicing fees to financial advisers and other persons who
sell Class A shares. PMFD received $1,162,700 in initial sales charges with
respect to sales of Class A shares.
Class B Plan. For the fiscal year ended December 31, 1994, Prudential
Securities received $26,750,316 from the Fund under the Plan. It is estimated
that Prudential Securities incurred aggregate distribution expenses of
approximately $24,590,100 on behalf of the Fund during such period. It is
estimated that of this amount approximately 0.7% ($160,600) was spent on
printing and mailing of prospectuses to other than current shareholders; 13.5%
($3,315,000) was spent on interest and/or carrying costs; 39.4% ($9,700,300) on
compensation to Pruco Securities Corporation, an affiliated broker-dealer
(Prusec), for commissions to its representatives and other expenses, including
an allocation on account of overhead and other branch office
distribution-related expenses, incurred by it for distribution of Fund shares;
and $11,414,200 (46.4%) on the aggregate of (i) payments of commissions to
account executives ($7,294,900 or 29.7%) and (ii) an allocation of overhead and
other branch office distribution-related expenses ($4,119,300 or 16.7%). The
term "overhead and other branch office distribution-related expenses" represents
(a) the expenses of operating Prudential Securities' branch offices in
connection with the sale of Fund shares, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of Fund shares and (d) other incidental expenses relating to branch
promotion of Fund sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide-How to Sell Your Shares-Contingent
Deferred Sales Charges" in the Prospectus. The amount of distribution expenses
reimbursable by the Class B shares of the Fund is reduced by the amount of such
contingent deferred sales charges. For the fiscal year ended December 31, 1994,
Prudential Securities received approximately $7,028,300 contingent deferred
sales charges.
Class C Plan. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See "Shareholder Guide-How to Sell Your Shares-Contingent Deferred Sales
Charges" in the Prospectus. For the period August 1, 1994 (inception of Class C
shares) through December 31, 1994, Prudential Securities received $200 in
contingent deferred sales charges.
B-11
<PAGE>
The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors, including a majority vote of the Rule 12b-1 Directors,
cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
30 days' written notice to any other party to the Plans. The Plans may not be
amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class
(by both Class A and Class B shareholders, voting separately, in the case of
material amendments to the Class A Plan), and all material amendments are
required to be approved by the Board of Directors in the manner described above.
Each Plan will automatically terminate in the event of its assignment. The Fund
will not be contractually obligated to pay expenses incurred under any Plan if
it is terminated or not continued.
Pursuant to each Plan, the Board of Directors 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 the Rule
12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was approved by the Board of Directors, including a
majority of the Rule 12b-1 Directors, on May 2, 1994.
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. 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 shares of any class, all
sales charges on shares of that class would be suspended.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the
B-12
<PAGE>
Board of Directors of PSG and the Compliance Committee of PSI. The new director
will also serve as an independent "ombudsman" whom PSI employees can call
anonymously with complaints about ethics and compliance. PSI shall report any
allegations or instances of criminal conduct and material improprieties to the
new director. The new director will submit compliance reports which shall
identify all such allegations or instances of criminal conduct and material
improprieties every three months for a three-year period.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section, the
term "Manager" includes the "Subadviser." In placing orders for portfolio
securities of the Fund, the Manager is required to give primary consideration to
obtaining the most favorable price and efficient execution. This means that the
Manager will seek to execute each transaction at a price and commission, if any,
which will provide the most favorable total cost or proceeds reasonably
obtainable in the circumstances. While the Manager generally seeks reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available. Within the framework of the policy of
obtaining most favorable price and efficient execution, the Manager will
consider research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of the Fund, the Manager or the
Manager's other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by the Manager in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for the Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than those of the Fund, and the services furnished by such brokers may be
used by the Manager in providing investment management for the Fund. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The Manager's policy is to pay higher commissions
to brokers, other than Prudential Securities, for particular transactions than
might be charged if a different broker had been selected on occasions when, in
the Manager's opinion, this policy furthers the objective of obtaining best
price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Fund to brokers, other than
Prudential Securities (or any affiliate), in order to secure research and
investment services described above, subject to the primary consideration of
obtaining the most favorable price and efficient execution in the circumstances
and subject to review by the Fund's Board of Directors from time to time as to
the extent and continuation of this practice. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Fund's
Board of Directors.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter, except in accordance
with rules of the SEC. The Fund may not participate in any transaction where
Prudential Securities (or any affiliate) is acting as principal, nor may the
Fund deal with Prudential Securities in any transaction in which Prudential
Securities (or any affiliate) acts as principal or market maker, except as may
be permitted by the SEC. These limitations, in the opinion of the Manager, will
not significantly affect the Fund's ability to pursue its investment objective.
However, the Fund may be at a disadvantage because of these limitations in
comparison to other funds not subject to such limitations.
Subject to the above considerations, the Manager may use Prudential
Securities as a broker for the Fund. In order for Prudential Securities or any
affiliate to effect any portfolio transactions for the Fund, the commissions,
fees and other remuneration received by Prudential Securities or any affiliate
must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time. This standard would allow Prudential
Securities or any affiliate to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Board of Directors of the Fund,
including a majority of the noninterested Directors, has adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities or any affiliate are consistent with
the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless the
Fund has expressly authorized the retention of such compensation. Prudential
Securities must furnish to the Fund at least annually a statement setting forth
the total amount of all compensation retained by Prudential Securities from
transactions effected for the Fund during the applicable period. Brokerage
transactions with Prudential Securities or any afffiliate are also subject to
such fiduciary standards as may be imposed upon Prudential Securities or such
affiliate by applicable law.
The Fund paid no brokerage commissions to Prudential Securities for the
fiscal years ended December 31, 1992, 1993 and 1994.
B-13
<PAGE>
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). See "Shareholder Guide-How
to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except
that the Fund has agreed with the SEC in connection with the offering of a
conversion feature on Class B shares to submit any amendment of the Class A
distribution and service plan to both Class A and Class B shareholders) and
(iii) only Class B shares have a conversion feature. See "Distributor." Each
class also has separate exchange privileges. See "Shareholder Investment
Account-Exchange Privilege."
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 4% and Class
B* and Class C* shares of the Fund are sold at net asset value. Using the Fund's
net asset value at December 31, 1994, the maximum offering price of the Fund's
shares is as follows:
Class A
Net asset value and redemption price per Class A share ................... $7.68
Maximum sales charge (4% of offering price) .............................. .32
-----
Offering price to public ................................................. $8.00
=====
Class B
Net asset value, offering price and redemption price per Class B share* .. $7.67
=====
Class C
Net asset value, offering price and redemption price per Class C share* .. $7.67
=====
- -------------------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide-How to Sell Your Shares-
Contingent Deferred Sales Charges" in the Prospectus.
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 the table of breakpoints under "Shareholder
Guide-Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be controlled
by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse;
B-14
<PAGE>
(g) one or more employee benefit plans of a company controlled by an
individual;
(h) 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); and
(i) (1) a client of a Prudential Securities financial adviser who gives such
financial adviser discretion to purchase the Prudential Mutual Funds for his or
her account only in connection with participation in a market timing program and
for which program Prudential Securities receives a separate advisory fee or (2)
a client of an unaffiliated registered investment adviser which is a client of
Prudential Securities financial adviser, if such unaffiliated adviser has
discretion to purchase the Prudential Mutual Funds for the accounts of his or
her customers but only if the client of such unaffiliated adviser participates
in a market timing program conducted by such unaffiliated adviser; provided such
accounts in the aggregate have assets of at least $15 million invested in the
Prudential Mutual Funds.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to comfirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in any
retirement or group plans.
Rights of Accumulation. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (net asset value plus maximum sales charge) as
of the previous business day. See "How the Fund Values its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
accumulation are not available to individual participants in any retirement or
group plans.
Letters of Intent. Reduced sales charges are also available to investors (or
an eligible group of related investors), including retirement and group plans,
who enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds. 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 and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held either
directly with the Transfer Agent or through Prudential Securities. The
Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. 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 a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal, except in
the case of retirement and group plans.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (or the employer or
plan sponsor in the case of any retirement or group plan) is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
Waiver of the Contingent Deferred Sales Charge-Class B Shares
The Contingent Deferred Sales Charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide-How to Sell Your Shares-Waiver of
Contingent Deferred Sales Charges-Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit the
supporting documentation set forth below.
B-15
<PAGE>
Category of Waiver Required Documentation
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
considered disabled if he or she is Administration award letter or a
unable to engage in any substantial letter from a physician on the
gainful activity by reason of any physician's letterhead stating that
medically determinable physical or the shareholder (or, in the case of a
mental impairment which can be trust, the grantor) is permanently
expected to result in death or to be disabled. The letter must also
of long-continued and indefinite indicate the date of disability.
duration.
Distribution from an IRA or 403(b) A copy of the distribution form from
Custodial Account the custodial firm indicating (i) the
date of birth of the shareholder and
(ii) that the shareholder is over age
59-1/2 and is taking a normal
distribution-signed by the
shareholder.
Distribution from Retirement 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.
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
Quantity Discount-Class B Shares Purchased Prior to August 1, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second purchase was $550,000, the quantity discount would
be available for the second purchase of $450,000 but not for the first purchase
of $100,000. The quantity discount will be imposed at the following rates
depending on whether the aggregate value exceeded $500,000 or $1 million:
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
or Redemption Proceeds
Year Since Purchase -----------------------------------------
Payment Made $500,000 to $1 million Over $1 million
------------------- ---------------------- ---------------
First ........................... 3.0% 2.0%
Second .......................... 2.0% 1.0%
Third ........................... 1.0% 0%
Fourth and thereafter ........... 0% 0%
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to the
shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions
For the convenience of investors, all dividends and capital gains
distributions are automatically reinvested in full and fractional shares of the
Fund at net asset value. An investor may direct the Transfer Agent in writing
not less than 5 full business
B-16
<PAGE>
days prior to the record date to have subsequent dividends and/or distributions
sent to him or her 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 distribution at net asset value by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the net asset value per share next determined after
receipt of the check or proceeds by the Transfer Agent.
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, respectively, of the Fund. All
exchanges are made on the basis of relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares of
another fund only if shares of such fund may legally be sold under applicable
state laws. For retirement and group plans having a limited menu of Prudential
Mutual Funds, the Exchange Privilege is available for those funds eligible for
investment in the particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Structured Maturity Fund and shares of Prudential Government Securities Trust
(Intermediate Term Series) and shares of the money market funds specified below.
No fee or sales load will be imposed upon the exchange. Shareholders of money
market funds who acquired such shares upon exchange of Class A shares may use
the Exchange Privilege only to acquire Class A shares of the Prudential Mutual
Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
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, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class B and Class C shares acquired as a
result of the exchange. The applicable sales charge will be that imposed by the
fund in which shares were initially purchased and the purchase date will be
deemed to be the first day of the month after the initial purchase, rather than
the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
Prudential Special Money Market Fund without imposition of any CDSC at the time
of exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated by
excluding the time such shares were held in the money market fund. In order to
minimize the period of time in which shares are subject to a CDSC, shares
exchanged out of the money market fund will be exchanged on the basis of their
remaining holding periods, with the longest remaining holding periods being
transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
B-17
<PAGE>
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege the 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.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including 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 $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and over $97,000 at a public university.1
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.2
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
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 Savings Accumulation Plan."
- --------------
1Source information concerning the costs of education at public universities
is available from The College Board Annual Survey of Colleges, 1992. Information
about the costs of private colleges is from the Digest of Education Statistics,
1992; The National Center for Educational Statistics; and the U.S. Department of
Education. Average costs for private institutions include tuition, fees, room
and board.
2The 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 Savings Accumulation Plan (ASAP)
Under ASAP, 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
Prudential Securities account (including a 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. Stock certificates are not
issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of the
shares in the shareholder's account. Withdrawals of Class B or Class C shares
may be subject to a CDSC. See "Shareholder Guide-How to Sell Your
Shares-Contingent Deferred Sales Charges" in the Prospectus.
B-18
<PAGE>
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account-Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals exceed reinvested dividends and distributions, the
shareholder's original investment may 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 charge applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B or Class C shares. Shareholders
should consult their tax advisers regarding the tax consequences of the
systematic withdrawal 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 sheltered accounts" under Section
403(b)(7) of the Internal Revenue Code are available through the Distributor.
These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by participants,
or a pooled account arrangement. Information regarding the establishment of
these plans, the administration, custodial fees and other details are available
from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
Individual Retirement Accounts
An individual retirement account (IRA) permits the deferral of federal
income tax on income earned in the account until the earnings are withdrawn. The
following chart represents a comparison of the earnings in a personal savings
account with those in an IRA, assuming a $2,000 annual contribution, an 8% rate
of return and a 39.6% federal income tax bracket and shows how much more
retirement income can accumulate within an IRA as opposed to a taxable
individual savings account.
Tax-Deferred Compounding1
Contributions Personal
Made Over: Savings IRA
------------- -------- --------
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
- -------------------
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
the IRA account will be subject to tax when withdrawn from the account.
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class. The
Fund will compute its net asset value 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 net asset value. In the event the New
York Stock Exchange closes early on any business day, the net asset value of the
Fund's shares shall be determined at a time between such closing and 4:15 P.M.,
New York time.
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. Portfolio
securities that are actively traded in the over-the-counter market, including
listed securities for
B-19
<PAGE>
which the primary market is believed to be over-the-counter, are valued at
prices provided by principal market makers and other pricing agents. Any
security for which the primary market is on an exchange is valued at the last
sale price on such exchange on the day of valuation or, if there was no sale on
such day, the last bid price quoted on such day. Short-term investments which
mature in 60 days or less are valued at amortized cost or by amortizing their
value on the 61st day prior to maturity, if their term to maturity from date of
purchase exceeds 60 days, unless the Board of Directors determines that such
valuation does not represent fair value. Securities issued in private placements
shall be valued at the mean between the bid and asked prices provided by primary
market makers. Securities which are otherwise not readily marketable or
securities for which reliable market quotations are not available are valued in
good faith at fair value under the supervision of the Board of Directors of the
Fund, taking into account such factors as the cost of the securities,
transactions in comparable securities, relationships among various securities
and other such factors as may be determined by the Fund's investment adviser to
materially affect the value of such securities. The Board of Directors may
consider prices provided by an independent pricing service in determining fair
value.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends on a daily basis in an amount based on actual
net investment income determined in accordance with generally accepted
accounting principles. A portion of such dividend may also include projected net
investment income. Such dividends will be payable monthly in additional shares
of the Fund unless otherwise requested by the shareholder.
Net capital gains, if any, will be distributed at least annually. In
determining the amount of capital gains to be distributed, any capital loss
carry forwards from prior years will be offset against capital gains. The Fund
had a capital loss carry forward for federal income tax purposes at December 31,
1994 of approximately $548,496,700, of which $34,055,200 expires in 1997,
$326,104,800 expires in 1998, $77,895,200 expires in 1999 and $110,441,500
expires in 2000. Accordingly, no capital gains distribution (short-term or
long-term) is expected to be paid to shareholders until net capital gains have
been realized in excess of the aggregate of such amounts. The Fund will elect to
treat net capital losses of approximately $33,033,000 incurred in the two month
period ended December 31, 1994 as having been incurred in the following fiscal
year. Distributions, if any, will be paid in additional Fund shares based on the
net asset value unless the shareholder elects in writing not less than 5 full
business days prior to the record date to receive such distributions in cash.
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. Under
Subchapter M, the Fund is not subject to federal income taxes on the taxable
income it distributes to shareholders, provided that it distributes to
shareholders each year at least 90% of its net investment income and net
short-term capital gains in excess of net long-term capital losses, if any.
Qualification as a regulated investment company under the Internal Revenue
Code requires, among other things, that the Fund (a) derive at least 90% of its
annual gross income (without offset for losses from the sale or other
disposition of securities or foreign currencies) from interest, payments with
respect to securities loans, dividends and gains from the sale or other
disposition of securities or foreign currencies and certain financial futures,
options and forward contracts; (b) derive less than 30% of its gross income from
gains from the sale or other disposition of securities or options thereon held
for less than three months; and (c) diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the market value of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities).
The Fund generally will be subject to a nondeductible excise tax of 4% to
the extent that it does not meet certain minimum distribution requirements as of
the end of each calendar year. The Fund intends to make timely distributions of
the Fund's income in compliance with these requirements. As a result, it is
anticipated that the Fund will not be subject to the excise tax.
Distributions of net investment income and realized net short-term capital
gains of the Fund are taxable to shareholders of the Fund as ordinary income,
whether such distributions are taken in cash or reinvested in additional shares.
Distributions of net long-term capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses), if any, are taxable as
long-term capital gains regardless of whether the shareholder received such
distribution in additional shares or in cash or of how long shares of the Fund
have been held. Distributions and dividends paid by the Fund generally will not
be eligible for the dividends-received deduction for corporate shareholders.
Tax-exempt shareholders will not be required to pay taxes on amounts distributed
to them.
The per share dividends on Class B shares will be lower than the per share
dividends on Class A shares as a result of the higher distribution-related fee
applicable with respect to the Class B and Class C shares. The per share
distributions of net capital gains, if any, will be paid in the same amount for
Class A, Class B and Class C shares. See "Net Asset Value."
Any gain or loss realized upon a sale or redemption of shares of the Fund by
a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year and
otherwise as short-term capital
B-20
<PAGE>
gain or loss. However, any loss realized by a shareholder upon the sale of
shares of the Fund held by the shareholder for six months or less will be
treated as long-term capital loss to the extent of any long-term capital gains
distributions received by the shareholder.
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 or distribution 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.
The Fund may be subject to state or local tax in certain states where it is
deemed to be doing business. Further, in those states which have income tax
laws, the tax treatment of the Fund and of shareholders of the Fund with respect
to distributions by the Fund may differ from federal tax treatment.
Distributions to shareholders may be subject to additional state and local
taxes.
Pennsylvania Personal Property Tax. The Fund has received a written letter
of determination from the Pennsylvania Department of Revenue that the Fund will
be subject to the Pennsylvania foreign franchise tax. Accordingly, it is
believed that Fund shares are exempt from Pennsylvania personal property taxes.
The Fund anticipates that it will continue such business activities but reserves
the right to suspend them at any time, resulting in the termination of the
exemption.
Statements as to the tax status of distributions to shareholders of the Fund
will be mailed annually. Shareholders are urged to consult their own tax
advisers regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
Yield. The Fund may from time to time advertise its "yield" as calculated
over a 30-day period. The yield is determined separately for Class A, Class B
and Class C shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the net asset
value per share on the last day of this period.
Yield is calculated according to the following formula:
a - b
YIELD = 2 [(---------- +1)6-1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The yield for the 30-day period ended December 31, 1994 for the Fund's Class
A, Class B and Class C shares was 11.46%, 11.33% and 11.34%, respectively.
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. Yield for the Fund will vary depending on a number of factors
including changes in net asset value, market conditions, the level of interest
rates and the level of Fund income and expenses.
The Board of Directors of the Fund has adopted procedures to ensure that the
Fund's yield is calculated in accordance with SEC regulations. Under those
procedures, limitations may be placed on yield to maturity calculations of
particular securities.
Average Annual Total Return. The Fund may also from time to time advertise
its average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1000 investment
made at the beginning of the 1, 5 or 10 year periods at the
end of the 1, 5 or 10 year periods (or fractional portion
thereof).
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
B-21
<PAGE>
The average annual total return with respect to the Class A shares for the
one year and since inception periods ended December 31, 1994 was -6.26% and
9.37%, respectively. The average annual total return for the Class B shares of
the Fund for the one, five and ten year periods ended on December 31, 1994 was
- -7.92%, 9.48% and 9.38%, respectively. The average annual total return for
Class C shares for the since inception period ended December 31, 1994 was
- -1.79%.
Aggregate Total Return. The Fund may from time to time advertise its
aggregate total return. Aggregate total return is determined separately for
Class A, Class B and Class C shares. See "How the Fund Calculates Performance"
in the Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed by the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = Ending Redeemable Value at the end of the 1, 5, or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 investment
made at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return with respect to the Class A shares for the one
year and since inception periods ended December 31, 1994 was -2.35% and
62.07%, respectively. The aggregate total return with respect to the Class B
shares of the Fund for the one, five and ten-year periods ended on December 31,
1994 was -2.92%, 58.34%, and 144.96%, respectively. The aggregate total
return for Class C shares for the since inception period ended December 31, 1994
was -0.79%.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.1
CHART
1Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation-1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). 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.
B-22
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND
DISBURSING AGENT AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to agreements with the Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions, and related functions. For
these services, PMFS receives an annual fee per shareholder account, a new
account set-up fee for each manually established account and a monthly inactive
zero balance account fee per shareholder account. PMFS is also reimbursed for
its out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended December 31, 1994, the Fund incurred fees of $3,484,000 for the services
of PMFS.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Fund's independent accountants and, in that capacity, audits the
Fund's annual financial statements.
B-23
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC. Portfolio of Investments
December 31, 1994
</TABLE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--95.3%
Bonds--94.2%
Aerospace--2.0%
K & F Industries,
Inc.,
Sr. Sec'd.
Notes,
11.875%,
B1 $ 15,585 12/1/03......... $ 15,156,413
P.A. Holdings
Corp.,
Sr. Sub. Notes,
B3 2,851 13.75%, 7/15/99... 2,993,550
Rohr, Inc., Sr.
Notes,
11.625%,
Ba3 18,500 5/15/03......... 18,407,500
Sequa Corp.,
Sr. Sub. Notes,
9.375%,
B3 27,750 12/15/03........ 24,420,000
Talley
Manufacturing &
Technolgy, Inc.,
Sr. Notes,
10.75%,
B2 9,000 10/15/03........ 8,100,000
--------------
69,077,463
--------------
Airlines--0.6%
NWA, Inc., Sr.
Notes,
(cost
$10,689,376;
purchased-1994),
12.09%,
NR 11,688(D) 12/31/00........ 11,278,591
USAir, Inc., Sr.
Notes,
B3 1,250 9.625%, 2/1/01.... 687,500
B3 19,250 10.00%, 7/1/03.... 10,587,500
--------------
22,553,591
--------------
Automotive Parts--2.8%
Doehler Jarvis,
Inc.,
Sr. Notes,
B3 10,000 11.875%, 6/1/02... 9,800,000
Foamex JPS Automotive L.P.,
Sr. Disc. Notes,
Zero Coupon (until 7/1/99),
Caa 19,500@ 14.00%, 7/1/04.... 10,237,500
Sr. Sub. Deb.,
11.875%,
B3 6,910 10/1/04......... 6,599,050
Harvard
Industries,
Inc.,
Sr. Notes,
B3 10,500 12.00%, 7/15/04... 10,578,750
JB Poindexter,
Inc.,
Sr. Notes,
B2 10,000 12.50%, 5/15/04... 9,400,000
JPS Automotive Products
Corp., Sr. Notes,
11.125%,
B2 $ 2,950 6/15/01......... $ 2,832,000
Motor Wheel Corp.,
Sr. Notes,
B2 10,130 11.50%, 3/1/00.... 9,370,250
Penda Industries,
Inc.,
Sr. Notes,
B2 7,000 10.75%, 3/1/04.... 6,300,000
SPX Corp.,
Sr. Sub. Notes,
B3 31,750 11.75%, 6/1/02.... 31,591,250
--------------
96,708,800
--------------
Broadcasting & Other
Media--9.1%
Ackerly Communications, Inc.,
Sr. Sec'd. Notes,
B* 10,000 10.75%, 10/1/03... 9,525,000
Adelphia Communications
Corp., Sr. Notes,
B3 24,500 12.50%, 5/15/02... 22,907,500
9.50%, 2/15/04,
NR 15,692 PIK............. 11,297,988
Allbritton Communications Co.,
Sr. Sub. Deb.,
B3 9,500 11.50%, 8/15/04... 9,547,500
Bell Cablemedia
Co.,
Sr. Disc. Notes,
Zero Coupon
(until 7/15/99),
B2 26,500 11.95%, 7/15/04... 14,177,500
Cablevision Industries Corp.,
Sr. Notes,
B1 7,500 10.75%, 1/30/02... 7,462,500
B1 26,000 9.25%, 4/1/08..... 23,270,000
Cablevision System Corp.,
Sr. Sub. Deb.,
B3 6,560 10.75%, 4/1/04.... 6,560,000
Sr. Sub. Notes,
B3 20,750 9.875%, 2/15/13... 18,675,000
Century
Communications
Corp., Sr. Sub.
Notes,
11.875%,
B2 30,385 10/15/03........ 31,676,363
</TABLE>
See Notes to Financial Statements.
B-24
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Broadcasting & Other Media
(cont'd.)
Chancellor Broadcasting Co.,
Sr. Sub. Notes,
B3 $ 12,000 12.50%, 10/1/04... $ 12,000,000
Continental Cablevision, Inc.,
Sr. Deb.,
Ba2 17,000 9.50%, 8/1/13..... 15,555,000
Sr. Sub. Deb.,
B1 15,700 11.00%, 6/1/07.... 15,935,500
Cooke Media Group, Inc.,
Sub. Deb.,
NR 2,000 11.625%, 4/1/99... 1,880,000
Diamond Cable Co.,
Sr. Disc. Notes,
Zero Coupon
(until 9/30/99),
B3 16,750 13.25%, 9/30/04... 8,207,500
Falcon Holdings Corp. L.P.,
Sr. Sub. Notes, PIK,
NR 18,450 11.00%, 9/15/03... 16,051,512
Jones Intercable,
Inc.,
Sr. Sub. Deb.,
B1 3,250 10.50%, 3/1/08.... 3,185,000
Marcus Cable Operating
Co. L.P.,
Sr. Sub. Disc. Notes,
Zero Coupon
(until 2/1/00),
B3 41,250 13.50% 8/1/04..... 21,862,500
NWCG Holdings Corp.,
Sr. Sec'd. Disc. Notes,
Zero Coupon,
Caa 19,000 6/15/99......... 9,690,000
Outdoor Systems,
Inc.,
Sr. Notes,
B2 6,550 10.75%, 8/15/03... 5,895,000
Robin Media Group, Inc.,
Sr. Sub. Deb.,
NR 1,000 11.125%, 4/1/97... 950,000
Rogers Cablesystems, Inc.,
Sr. Sec'd. Deb.,
Ba3 10,000 10.125%, 9/1/12... 9,550,000
Scott Cable
Communications,
Inc., Sub. Deb.,
NR $ 2,000 12.25%, 4/15/01... $ 1,600,000
United Artists, Inc.,
Sr. Sec'd. Notes,
Ba3 8,500 11.50%, 5/1/02.... 8,776,250
United Int'l. Holdings, Inc.,
Sr. Disc. Notes,
Zero Coupon,
B3 49,500@ 11/15/99........ 24,997,500
Videotron
Holdings,
Sr. Disc. Notes,
Zero Coupon
(until 7/1/99),
B3 10,500 11.125%, 7/1/04... 5,512,500
--------------
316,747,613
--------------
Building & Related
Industries--5.5%
American Standard, Inc.,
Sr. Sub. Deb.,
Zero Coupon
(until 6/1/98),
B1 33,500 10.50%, 6/1/05.... 21,523,750
Baldwin Co., Sr.
Notes,
B2 14,500 10.375%, 8/1/03... 7,830,000
Building Material
Corp.
of America, Sr.
Def'd. Notes,
Ser. B,
Zero Coupon
(until 7/1/99),
BB* 29,750 11.75%, 7/1/04.... 15,172,500
Continental Homes
Holdings, Sr.
Notes,
B1 10,000 12.00%, 8/1/99.... 9,400,000
Del Webb Corp.,
Sr. Notes,
10.875%,
Ba3 7,000 3/31/00......... 6,650,000
Sr. Sub. Deb.,
B2 2,250 9.75%, 3/1/03..... 1,867,500
Essex Group, Inc.,
Sr. Notes,
B1 3,250 10.00%, 5/1/03.... 3,055,000
Greystone Homes,
Inc.,
Gtd. Sr. Notes,
B3 15,000 10.75%, 3/1/04.... 12,675,000
</TABLE>
See Notes to Financial Statements.
B-25
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Building & Related Industries
(cont'd.)
Hovnanian K
Enterprises,
Inc., Sub.
Notes,
B1 $ 15,000 11.25%, 4/15/02... $ 12,525,000
Inter-City Prods.
Corp.,
Sr. Sec'd.
Notes,
Ba3 15,560 9.75%, 3/1/00..... 14,509,700
J.M. Peters, Inc.,
Sr. Notes,
B3 10,000@ 12.75%, 5/1/02.... 8,300,000
Nortek, Inc.,
Sr. Sub. Notes,
B3 25,125 9.875%, 3/1/04.... 22,361,250
NVR, Inc., Sr.
Notes,
B2 12,100 11.00%, 4/15/03... 10,164,000
The Presley
Companies,
Sr. Notes,
B2 9,000 12.50%, 7/1/01.... 7,740,000
Ryland Group,
Inc.,
Sr. Sub. Notes,
Ba3 8,950 10.50%, 7/15/02... 8,010,250
Ba3 11,050 9.625%, 6/1/04.... 9,282,000
Southdown, Inc.,
Sr. Sub. Notes,
14.00%,
NR 12,800 10/15/01........ 14,240,000
UDC Homes, Inc.,
Sr. Notes,
B2 7,000 11.75%, 4/30/03... 4,620,000
--------------
189,925,950
--------------
Casinos--6.6%
Aztar Corp.,
Sr. Sub. Notes, Ser. B,
B2 6,650 11.00%, 10/1/02... 6,051,500
Sr. Sub. Notes,
B2 23,000 13.75%, 10/1/04... 23,345,000
Bally's Casino,
Inc.,
Sr. Disc. Notes,
Zero Coupon,
B3 16,750 6/15/98......... 10,217,500
Bally's Park Place
Funding, Inc.,
First Mtge.
Bonds,
B1 $ 38,000 9.25%, 3/15/04.... $ 32,680,000
Casino America,
Inc.,
First Mtge.
Bonds,
11.50%,
B1 9,000 11/15/01........ 7,570,000
Casino Magic Finance Corp.,
First Mtge. Bonds,
11.50%,
B1 13,500 10/15/01........ 8,640,000
Empress River
Casino Finance
Corp.,
Sr. Notes,
B1 15,000 10.75%, 4/1/02.... 13,725,000
GB Property Funding Corp.,
First Mtge. Notes,
10.875%,
B2 4,000 1/15/04......... 3,240,000
Grand Casino Resorts, Inc.,
First Mtge. Notes, Ser. B,
NR 11,000 12.50%, 2/1/00.... 10,340,000
Hollywood Casino Corp.,
Sr. Sec'd. Notes,
NR 10,547 14.00%, 4/1/98.... 10,441,530
Lady Luck Gaming
Finance Corp.,
First Mtge.
Notes,
B2 6,000 10.50%, 3/1/01.... 2,340,000
President
Riverboat
Casinos, Inc.,
Sr. Sub. Notes,
B2 5,000@ 13.00%, 9/15/01... 4,512,500
PRT Funding Corp.,
Sr. Notes,
11.625%,
B3 7,000 4/15/04......... 4,865,000
Resorts Int'l.,
Inc.,
First Mtge.
Notes,
B3 7,960 7.25%, 6/30/00.... 6,499,892
Santa Fe Hotel,
Inc.,
First Mtge.
Notes,
11.00%,
B2 11,000@ 12/15/00........ 9,900,000
</TABLE>
See Notes to Financial Statements.
B-26
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Casinos (cont'd.)
Showboat, Inc.,
Gtd. First Mtge. Bonds,
Ba3 $ 3,000 9.25%, 5/1/08..... $ 2,505,000
Sr. Sub. Notes,
B2 14,500 13.00%, 8/1/09.... 13,775,000
Station Casinos,
Inc.,
Sr. Sub. Notes,
B2 18,800 9.625%, 6/1/03.... 15,792,000
Trump Plaza Funding, Inc.,
First Mtge. Notes,
10.875%,
B3 25,015 6/15/01......... 19,011,400
Trump Taj Mahal
Funding, Inc.,
First Mtge.
Bonds, Class B,
PIK,
Caa 34,082 11.35% 11/15/99... 22,664,222
--------------
228,115,544
--------------
Chemicals--4.3%
Arcadian Partners
L.P.,
Sr. Notes, Ser.
A,
B2 30,250 10.75%, 5/1/05.... 28,435,000
G-I Holdings,
Inc.,
Sr. Notes,
Zero Coupon,
Ba3 40,000 10/1/98......... 24,700,000
Harris Chemical NA, Inc.,
Gtd. Sr. Notes,
Zero Coupon
(until 1/15/96),
B2 9,200 10.25%, 7/15/01... 7,567,000
Huntsman Corp.,
First Mtge.
Notes,
10.625%,
B1 13,000 4/15/01......... 13,260,000
B1 3,500 11.00%, 4/15/04... 3,640,000
Indspec Chemical Corp.,
Sr. Sub. Notes,
Zero Coupon
(until 12/1/98),
10.50%,
NR 19,427 12/1/03......... 11,073,390
Laroche Industies,
Inc.,
Sr. Sub. Notes,
B3 6,000 13.00%, 8/15/04... 5,520,000
NL Industries,
Inc.,
Sr. Notes,
Zero Coupon
(until
10/15/98),
13.00%,
B2 $ 28,080 10/15/05........ $ 17,409,600
Sr. Sec'd. Notes,
11.75%,
B1 15,500 10/15/03........ 15,500,000
Polymer Group,
Inc.,
Sr. Notes,
(cost
$8,500,000;
purchased-1994),
Caa 8,500(D) 12.25%, 7/15/02... 8,117,500
Rexene Corp.,
Sr. Notes,
B1 12,000 11.75%, 12/1/04... 12,300,000
UCC Investors Holdings, Inc.,
Sr. Disc. Notes,
Zero Coupon
(until 5/1/98),
B3 5,300 12.00%, 5/1/05.... 3,511,250
--------------
151,033,740
--------------
Consumer Goods--1.9%
Apparel Ventures,
Inc.,
Sr. Notes, Ser.
B,
12.25%,
NR 2,000 12/31/00........ 1,790,000
Astrum Int'l.
Corp., Notes,
B3 17,761 11.50%, 6/8/03.... 17,849,805
Florsheim Shoe
Co.,
Sr. Notes,
B1 4,000 12.75%, 9/1/02.... 3,880,000
Health O Meter,
Inc.,
Sr. Sub. Notes,
NR 7,000@ 13.00%, 8/15/02... 6,300,000
JB Williams Holdings, Inc.,
Sr. Notes,
B3 5,500 12.00%, 3/1/04.... 5,142,500
MacAndrews &
Forbes
Group, Inc.,
Sub. Notes,
NR 6,400 12.25%, 7/1/96.... 6,336,000
Playtex Family Products
Corp., Sr. Sub. Notes,
B3 6,400 9.00%, 12/15/03... 5,568,000
</TABLE>
See Notes to Financial Statements.
B-27
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Consumer Goods (cont'd.)
Revlon Consumer
Products Corp.,
Deb.,
10.875%,
B2 $ 5,450 7/15/10......... $ 5,082,125
Sr. Notes,
NR 5,000 9.375%, 4/1/01.... 4,475,000
Sr. Sub. Notes,
B3 11,000 10.50%, 2/15/03... 9,845,000
--------------
66,268,430
--------------
Diversified Industries--3.9%
Envirodyne Industries, Inc.,
Sr. Notes,
B2 21,500 10.25%, 12/1/01... 15,050,000
Fairchild Corp.,
Sr. Notes,
B3 3,400 12.25%, 3/15/96... 3,374,160
Sub. Deb.,
12.00%,
B3 5,000 10/15/01........ 4,500,000
Fairchild Industries, Inc.,
Sr. Sec'd. Notes,
B2 13,700 12.25%, 2/1/99.... 13,426,000
IMO Industries,
Inc.,
Sr. Sub. Deb.,
B3 20,698 12.25%, 8/15/97... 20,698,000
B3 5,750 12.00%, 11/1/01... 5,800,313
Interlake Corp.,
Sr. Sub. Deb.,
B3 23,625 12.125%, 3/1/02... 21,971,250
Jordan Industries,
Inc.,
Sr. Notes,
B3 27,000 10.375%, 8/1/03... 24,030,000
Sr. Sub. Disc.
Deb.,
Zero Coupon
(until 2/1/98),
Caa 4,500 11.75%, 8/1/05.... 2,250,000
Kenetech Corp.,
Sr. Sec'd.
Notes,
12.75%,
B2 8,750 12/15/02........ 9,187,500
Lamson & Sessions
Co.,
Sr. Sub. Deb.,
B2 $ 1,000 14.00%, 6/1/97.... $ 1,010,000
MAXXAM Group,
Inc.,
Sr. Sec'd. Disc.
Notes,
Zero Coupon
(until 8/1/98),
B3 2,000 12.25%, 8/1/03.... 1,140,000
Newflo Corp.,
Sub. Notes,
13.25%,
B3 10,000 11/15/02........ 9,850,000
Remington Arms,
Inc., Sr. Sub.
Notes,
(cost
$5,002,375;
purchased-1994)
B2 5,800(D) 10.00%, 12/1/03... 4,872,000
--------------
137,159,223
--------------
Drugs & Health Care--4.4%
American Medical Int'l., Inc.,
Sr. Deb.,
Ba2 8,402 11.25%, 6/1/15.... 8,822,100
Sr. Notes,
11.00%,
Ba2 5,425 10/15/00........ 5,642,000
Charter Medical
Corp.,
Sr. Sub. Notes,
B2 39,950 11.25%, 4/15/04... 41,148,500
Community Health Systems,
Inc., Sr. Sub. Deb.,
10.25%,
B2 3,000 11/30/03........ 2,970,000
Continental Medical System,
Inc., Sr. Sub. Notes,
10.875%,
B2 27,500 8/15/02......... 22,137,500
Healthtrust, Inc.,
Sub. Notes,
B1 19,874 10.75%, 5/1/02.... 21,116,125
OrNda Healthcorp,
Inc.,
Sr. Sub. Notes,
B2 39,440 12.25%, 5/15/02... 42,200,800
Surgical Health
Corp.,
Sr. Sub. Notes,
B3 4,750 11.50%, 7/15/04... 4,750,000
</TABLE>
See Notes to Financial Statements.
B-28
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Drugs & Health Care (cont'd.)
Total Renal Care,
Inc.,
Sr. Disc. Notes,
Zero Coupon
(until 8/15/97),
B3 $ 5,000@ 12.00%, 8/15/04... $ 3,750,000
--------------
152,537,025
--------------
Energy--4.8%
Clark R&M Holdings, Inc.,
Sr. Sec'd. Notes, Ser. A,
Zero Coupon,
B1 20,000 2/15/00......... 11,400,000
Empire Gas Corp.,
Sr. Sec'd. Notes,
7.00% (until 7/15/99),
Caa 10,750@ 10.00%, 7/15/04... 8,008,750
Falcon Drilling,
Inc.,
Sr. Notes,
B2 8,250 9.75%, 1/15/01.... 7,837,500
Forest Oil Corp.,
Sr. Sub. Notes,
B3 10,000 11.25%, 9/1/03.... 8,850,000
Gulf Canada Resources, Ltd.,
Sr. Sub. Deb.,
B2 25,580 9.25%, 1/15/04.... 23,469,650
Maxus Energy
Corp.,
Deb.
11.50%,
B1 6,750 11/15/15........ 6,210,000
Notes,
B1 15,000 9.375%, 11/1/03... 12,600,000
Mesa Capital
Corp.,
Sec'd. Disc.
Notes,
Zero Coupon
(until 6/30/95),
B3 58,601 12.75%, 6/30/98... 50,543,362
Nuevo Energy
Corp.,
Sr. Sub. Notes,
B3 6,000 12.50%, 6/15/02... 6,150,000
Petroleum Heat &
Power, Inc.,
Sub. Deb.,
B2 5,000 9.375%, 2/1/06.... 4,200,000
Sub. Notes,
B2 5,500 10.125%, 4/1/03... 5,005,000
Triton Energy
Corp.,
Sr. Sub. Disc.
Notes,
Zero Coupon
(until
12/15/96),
B1 $ 13,000 9.75%, 12/15/00... $ 9,701,250
Wainoco Oil Corp.,
Sr. Notes,
B1 11,850 12.00%, 8/1/02.... 12,087,000
--------------
166,062,512
--------------
Entertainment--0.2%
Imax Corp., Sr.
Notes,
NR 5,000 7.00%, 3/1/01..... 4,175,000
Plitt Theatres,
Inc.,
Sr. Sub. Notes,
10.875%,
B3 3,000 6/15/04......... 2,790,000
--------------
6,965,000
--------------
Financial Services--1.4%
Chartwell Reinsurance Corp.,
Sr. Notes,
Ba3 4,000 10.25%, 3/1/04.... 3,520,000
Delaware
Management
Holdings, Inc.,
Sr. Sec'd.
Notes,
Ba3 5,100 10.25%, 3/15/04... 5,329,500
Lomas Mortgage USA, Inc.,
Sr. Notes,
B1 14,700 10.25%, 10/1/02... 12,201,000
Reliance Group
Holdings,
Inc., Sr. Sub.
Deb.,
B1 18,700 9.75%, 11/15/03... 16,362,500
Scotsman Group,
Inc.,
Sr. Sec'd.
Notes,
B1 13,250 9.50%, 12/15/00... 11,991,250
--------------
49,404,250
--------------
Food & Beverage--4.8%
Chiquita Brands Int'l., Inc.,
Sub. Notes,
B3 2,225 11.50%, 6/1/01.... 2,169,375
Del Monte Corp.,
Sub. Notes,
(cost
$16,653,992;
purchased-1993),
12.25%, 9/1/02,
NR 17,201(D) PIK............. 15,996,930
</TABLE>
See Notes to Financial Statements.
B-29
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Food & Beverage (cont'd.)
Di Giorgio Corp.,
Sr. Notes,
B2 $ 9,000 12.00%, 2/15/03... $ 8,640,000
Fresh Del Monte Produce,
N.V., Sr. Notes,
B1 18,050 10.00%, 5/1/03.... 12,274,000
Heileman Acquisition Corp.,
Sr. Sub. Notes,
B3 13,421 9.625%, 1/31/04... 8,723,650
PF Acquisition
Corp.,
Sr. Sub. Notes,
(cost
$12,500,000;
purchased-1994)
B3 12,500(D) 12.75%, 2/1/05.... 12,500,000
Pilgrim's Pride
Corp.,
Sr. Sub. Notes,
B3 10,000 10.875%, 8/1/03... 9,425,000
PM Holdings Corp.,
Sub. Notes,
Zero Coupon
(until 9/1/00),
NR 12,437@ 11.50%, 9/1/05.... 5,550,011
Premium Standard Farms L.P.,
Sr. Sec'd. Notes,
(cost $10,000,000;
purchased-1994)
NR 10,000(D) 12.25%, 6/15/04... 10,050,000
Sr. Sec'd. Disc. Notes,
(cost $27,730,698;
purchased-1993)
Zero Coupon
(until 9/15/96),
NR 34,627(D) 12.00%, 9/15/03... 27,701,600
Seven-Up/RC
Bottling Co.,
Sr. Sec'd.
Notes,
Caa 13,980 11.50%, 8/1/99.... 11,743,200
Specialty Foods
Corp.,
Sr. Sec'd. Disc. Notes,
Zero Coupon
(until 8/15/99),
Caa 4,000 13.00%, 8/15/05... 1,610,000
Specialty Foods
Corp.,
Sr. Sub. Notes,
B3 $ 18,850 11.25%, 8/15/03... $ 16,399,500
Sr. Unsec'd.
Notes,
B2 25,000 10.25%, 8/15/01... 22,250,000
White Rose Foods,
Inc.,
Sr. Notes,
Zero Coupon,
NR 6,250 11/1/98......... 3,375,000
--------------
168,408,266
--------------
Leasing--0.1%
Tiphook Finance
Corp.,
Sr. Notes,
Caa 4,000 7.125%, 5/1/98.... 2,920,000
--------------
Leisure & Tourism--2.2%
Bally's Grand,
Inc.,
First Mtge.
Notes,
10.375%,
NR 31,400 12/15/03........ 27,318,000
Cinemark USA,
Inc.,
Sr. Notes,
B1 10,750 12.00%, 6/1/02.... 11,180,000
Four Seasons Hotels, Inc.,
Notes,
(cost $10,793,500;
purchased-1994)
B1 11,300(D) 9.125%, 7/1/00.... 10,509,000
Host Marriott
Corp.,
Sr. Notes,
B1 8,498 10.625%, 2/1/00... 8,498,000
Host Marriott Hospitality,
Inc., Sr. Notes,
10.875%,
B1 5,236 11/1/01......... 5,314,540
B1 1,312 10.50%, 5/1/06.... 1,305,440
John Q Hammonds Hotels,
First Mtge. Notes,
B1 1,750 8.875%, 2/15/04... 1,513,750
Kloster Cruise
Ltd.,
Sr. Sec'd.
Notes,
B2 5,000 13.00%, 5/1/03.... 4,500,000
Red Roof Inns,
Inc.,
Sr. Notes,
9.625%,
B3 8,500 12/15/03........ 7,820,000
--------------
77,958,730
--------------
</TABLE>
See Notes to Financial Statements.
B-30
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Miscellaneous Services--0.6%
Americold Corp.,
First Mtge. Bonds, Ser. B,
B2 $ 10,000 11.50%, 3/1/05.... $ 9,000,000
Clean Harbors,
Inc.,
Sr. Notes,
B2 5,000 12.50%, 5/15/01... 4,787,500
L A Petite Holdings Corp.,
Sr. Sec'd. Notes,
B3 5,565 9.625%, 8/1/01.... 5,203,275
Solon Automated Services,
Inc., Sr. Notes,
B1 3,000 12.75%, 7/15/01... 2,850,000
--------------
21,840,775
--------------
Paper & Forest Products--7.5%
Container Corp.,
Sr. Notes, Ser.
A,
B2 23,500 11.25%, 5/1/04.... 24,087,500
Domtar, Inc.,
Notes,
Ba1 18,300 12.00%, 4/15/01... 19,032,000
Sr. Notes,
Ba1 500 11.75%, 3/15/99... 513,750
Foamex L.P., Sr.
Notes,
B1 13,500 11.25%, 10/1/02... 12,825,000
Fort Howard Paper Corp.,
Jr. Sub. Deb.,
14.125%,
B3 27,250 11/1/04......... 27,454,375
Sr. Sub. Notes,
B2 10,300 9.00%, 2/1/06..... 8,858,000
Sub. Deb.,
12.625%,
B2 10,200 11/1/00......... 10,506,000
Gaylord Container Corp.,
Sr. Notes,
B3 3,750 11.50%, 5/15/01... 3,862,500
Sr. Sub. Disc.
Deb.,
Zero Coupon
(until 5/15/96),
12.75%,
Caa 12,000 5/15/05......... 10,620,000
Indah Kiat Int'l. Finance Co.,
Sr. Sec'd. Notes, Ser. C,
Ba3 11,000 12.50%, 6/15/06... 10,697,500
Ivex Holdings
Corp.,
Sr. Disc. Deb.,
Ser. B,
Zero Coupon
(until 3/15/00),
Caa $ 10,500 13.25%, 3/15/05... $ 4,200,000
Ivex Packaging
Corp.,
Sr. Sub. Notes,
12.50%,
B3 12,000 12/15/02........ 11,940,000
Malette, Inc.,
Sr. Sec'd.
Notes,
Ba3 9,500 12.25%, 7/15/04... 9,595,000
Pacific Lumber
Co.,
Sr. Notes,
B3 23,923 10.50%, 3/1/03.... 22,248,390
SD Warren Co.,
Sr. Sub. Notes,
(cost
$15,000,000;
purchased-1994),
12.00%,
B1 15,000(D)/@ 12/15/04........ 15,337,500
Seminole Kraft
Corp.,
Sub. Notes,
13.50%,
NR 2,399 10/15/96........ 2,399,000
Stone Consolidated, Inc.,
Sr. Sub. Notes,
10.25%,
B1 17,000 12/15/00........ 16,745,000
Stone Container
Corp.,
Sr. Notes,
11.875%,
B1 15,272 12/1/98......... 15,806,520
B1 35,500 9.875%, 2/1/01.... 33,370,000
--------------
260,098,035
--------------
Plastic Products--0.8%
Applied Extrusion
Technology,
Inc.,
Sr. Notes, Ser.
B,
B3 14,500 11.50%, 4/1/02.... 14,355,000
Plastic Specialty
&
Technology,
Inc.,
Sr. Notes,
B3 12,000 11.25%, 12/1/03... 10,560,000
Uniroyal Technology Corp.,
Notes,
B2 4,000 11.75%, 6/1/03.... 3,240,000
--------------
28,155,000
--------------
</TABLE>
See Notes to Financial Statements.
B-31
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Pollution Control--0.3%
ICF Kaiser Int'l.,
Inc.,
Sr. Sub. Notes,
12.00%,
B3 $ 12,000 12/31/03........ $ 10,320,000
--------------
Publishing--3.6%
Affiliated
Newspapers,
Sr. Disc. Notes,
Zero Coupon
(until 7/1/99),
B3 17,000@ 13.25%, 7/1/06.... 8,670,000
Affinity Group,
Inc.,
Sr. Sub. Notes,
11.50%,
B2 8,400 10/15/03........ 8,190,000
American Media
Operations,
Inc.,
Sr. Sub. Notes,
11.625%,
B1 9,000 11/15/04........ 9,225,000
Bell & Howell Co., Deb.,
Zero Coupon
(until 3/1/00),
B3 49,035 11.25%, 3/1/05.... 23,904,562
Big Flower Press,
Inc.,
Sr. Sub. Notes,
B3 12,500 10.75%, 8/1/03.... 11,625,000
Garden State Newspapers,
Sr. Sub. Notes,
B2 10,000 12.00%, 7/1/04.... 10,000,000
Mail-Well Envelope Corp.,
Sr. Sub. Notes,
B3 8,500 10.50%, 2/15/04... 7,395,000
Marvel Holdings,
Inc.,
Sr. Notes,
Zero Coupon,
B3 25,750 4/15/98......... 15,836,250
Neodata Services,
Inc.,
Sr. Def'd.
Notes,
Zero Coupon
(until 5/1/96),
12.00%, 5/1/03,
B3 14,500 Ser. B.......... 11,310,000
Sullivan Graphics,
Inc.,
Sr. Sub. Notes,
Ca 9,500 15.00%, 2/1/00.... 10,070,000
Williamhouse
Regency
Delaware, Inc.,
Sr. Sub. Deb.,
B2 $ 11,000 11.50%, 6/15/05... $ 10,120,000
--------------
126,345,812
--------------
Restaurants--2.3%
Carrols Corp., Sr.
Notes,
B3 4,500 11.50%, 8/15/03... 4,140,000
Family Restaurants, Inc.,
Sr. Notes,
B1 16,000 9.75%, 2/1/02..... 12,560,000
Sr. Sub. Disc.
Notes,
Zero Coupon
(until 2/1/97),
B3 35,000 10.875%, 2/1/04... 18,550,000
Flagstar Corp.,
Sr. Notes,
B2 31,200 10.75%, 9/15/01... 29,250,000
10.875%,
B2 300 12/1/02......... 279,000
Sr. Sub. Deb.,
Caa 18,500 11.25%, 11/1/04... 15,262,500
--------------
80,041,500
--------------
Retail--5.7%
Apparel Retailers,
Inc.,
Sr. Disc. Deb.,
Zero Coupon
(until 8/15/98),
Caa 19,250 12.75%, 8/15/05... 10,780,000
Barnes & Noble,
Inc.,
Sr. Sub. Notes,
11.875%,
B2 17,400 1/15/03......... 18,618,000
Bradlees, Inc.,
Sr. Sub. Notes,
B2 16,800 11.00%, 8/1/02.... 15,288,000
B2 5,650 9.25%, 3/1/03..... 4,661,250
Brylane L.P.,
Sr. Sub. Notes,
B2 10,000 10.00%, 9/1/03.... 9,800,000
Cole National
Corp.,
Sr. Notes,
B1 18,600 11.25%, 10/1/01... 17,484,000
</TABLE>
See Notes to Financial Statements.
B-32
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Retail (cont'd.)
Color Tile, Inc.,
Sr. Notes,
10.75%,
B2 $ 20,000 12/15/01........ $ 17,600,000
Federated
Department
Stores, Inc.,
Sr. Notes, Ser.
B,
NR 10,000# 11.29%, 6/30/02... 10,087,500
Hills Stores Co.,
Sr. Notes,
NR 19,500 10.25%, 9/30/03... 18,135,000
Musicland Group,
Inc.,
Sr. Sub. Notes,
B1 3,000 9.00%, 6/15/03.... 2,490,000
Orchard Supply
Corp.,
Sr. Notes,
B2 8,000 9.375%, 2/15/02... 6,640,000
Pier 1 Imports,
Inc.,
Sub. Deb.,
B1 1,797 11.50%, 7/15/03... 1,850,910
Specialty
Retailers, Inc.,
Sr. Sub. Notes,
B3 9,040 11.00%, 8/15/03... 8,136,000
Thrifty Payless,
Inc.,
Sr. Notes,
B2 22,000@ 11.75%, 4/15/03... 21,560,000
Sr. Sub. Notes,
B3 22,000 12.25%, 4/15/04... 22,440,000
Wherehouse Entertainment, Inc.,
Sr. Sub. Notes, Ser. B,
B3 5,250 13.00%, 8/1/02.... 2,625,000
Wickes Lumber Co.,
Sr. Sub. Disc.
Notes,
11.625%,
B3 10,000 12/15/03........ 9,700,000
--------------
197,895,660
--------------
Steel & Metals--6.2%
Envirosource,
Inc.,
Sr. Notes,
B3 14,725 9.75%, 6/15/03.... 12,663,500
Florida Steel
Corp.,
First Mtge.
Notes,
11.50%,
Ba3 6,050 12/15/00........ 5,929,000
Geneva Steel Co.,
Sr. Notes,
11.125%,
B1 $ 6,000 3/15/01......... $ 5,640,000
B1 10,500 9.50%, 1/15/04.... 8,872,500
GS Technologies
Operating, Inc.,
Sr. Notes,
B2 8,250 12.00%, 9/1/04.... 8,146,875
Horsehead Industries, Inc.,
Sr. Sub. Ext. Reset Notes,
B1 9,472 15.75%, 6/1/97.... 9,756,160
Sub. Notes,
B2 10,000 14.00%, 6/1/99.... 9,900,000
Kaiser Aluminum &
Chemical Corp.,
Sr. Notes,
B1 18,750 9.875%, 2/15/02... 17,203,125
Sr. Sub. Notes,
B2 21,850 12.75%, 2/1/03.... 22,013,875
Republic Engineered Steels,
Inc., First Mtge. Bonds,
9.875%,
B2 18,650 12/15/01........ 16,878,250
Sherritt, Inc.,
Deb.,
B1 24,000 10.50%, 3/31/14... 23,130,000
Silgan Corp.,
Sr. Sub. Deb.,
B3 11,695 11.75%, 6/15/02... 12,104,325
Silgan Holdings,
Inc.,
Sr. Disc. Deb.,
Zero Coupon
(until 6/15/96),
B3 26,865 13.25% 12/15/02... 22,566,600
Tubos De Acero De
Mexico S A,
Unsec'd. Notes,
(cost
$4,987,500;
purchased-1994),
NR 5,000(D) 13.75%, 12/8/99... 4,900,000
WCI Steel, Inc.,
Sr. Notes,
B1 15,000 10.50%, 3/1/02.... 14,400,000
Wheeling Pittsburgh Corp.,
Sr. Notes,
9.375%,
B1 25,000 11/15/03........ 21,250,000
--------------
215,354,210
--------------
</TABLE>
See Notes to Financial Statements.
B-33
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Supermarkets--6.4%
Farm Fresh, Inc.,
Sr. Notes,
B2 $ 12,750 12.25%, 10/1/00... $ 11,092,500
B2 1,250 12.25%, 10/1/00... 1,075,000
Food 4 Less Super-
markets, Inc.,
Sr. Disc. Notes,
Ser. B,
Zero Coupon
(until
12/15/97),
15.25%,
Caa 13,000 12/15/04........ 9,620,000
Sr. Notes,
B1 9,245 10.45%, 4/15/00... 9,060,100
Sr. Sub. Notes,
B3 4,950 13.75%, 6/15/01... 5,370,750
Grand Union Co.**,
Sr. Notes,
11.375%,
B2 14,300(DD) 2/15/99......... 12,727,000
B3 8,200(DD) 11.25%, 7/15/00... 7,298,000
Pathmark Stores,
Inc.,
Jr. Sub. Notes,
Zero Coupon
(until 11/1/99),
B3 19,400 10.75%, 11/1/03... 9,894,000
Sr. Sub. Notes,
B2 28,488 9.625%, 5/1/03.... 25,354,320
Sub. Notes,
11.625%,
B3 21,500 6/15/02......... 20,640,000
12.625%,
B3 10,500 6/15/02......... 10,500,000
Penn Traffic Co.,
Sr. Sub. Notes,
B2 24,400 9.625%, 4/15/05... 21,228,000
Pueblo Xtra
Int'l., Inc.,
Sr. Notes,
B2 19,605 9.50%, 8/1/03..... 16,468,200
Ralphs Grocery
Co.,
Sr. Sub. Notes,
B2 26,732 10.25%, 7/15/02... 26,264,190
B2 15,000 9.00%, 4/1/03..... 14,550,000
Smittys Super Value, Inc.,
Sr. Sub. Notes,
(cost $4,500,000;
purchased-1994)
NR 4,500(D)/@ 12.75%, 6/15/04... 4,415,625
Southland Corp.,
Sr. Sub. Deb.,
B2 $ 10,000 12.00%, 6/15/09... $ 9,800,000
Star Markets Co.,
Sr. Sub. Notes,
(cost
$6,000,000;
purchased-1994)
13.00%,
B3 6,000(D) 11/1/04,........ 6,105,000
--------------
221,462,685
--------------
Technology--0.7%
Berg Electronics,
Inc.,
Sr. Sub. Deb.,
B3 2,500 11.375%, 5/1/03... 2,481,250
Unisys Corp.,
Notes,
Ba3 12,350 13.50%, 7/1/97.... 13,214,500
Waters Corp.,
Sr. Sub. Notes,
B3 9,000 12.75%, 9/30/04... 9,045,000
--------------
24,740,750
--------------
Telecommunications--1.8%
Call-Net Enterprises, Inc.,
Sr. Disc. Notes,
Zero Coupon
(until 12/1/99),
B2 18,000 13.25%, 12/1/04... 9,405,000
Cencall Communica-
tions Corp.,
Sr. Disc. Notes,
Zero Coupon
(until 1/15/99),
Caa 24,000 13.25%, 1/15/04... 8,400,000
Dial Call Communications,
Inc., Sr. Disc. Notes,
Zero Coupon
(until 12/15/98),
10.25%,
Caa 4,250 12/15/05........ 1,232,500
Mobilemedia Commu-
nications, Inc.,
Sr. Notes,
Zero Coupon
(until 12/1/98),
10.50%,
B3 21,000 12/1/03......... 11,970,000
</TABLE>
See Notes to Financial Statements.
B-34
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Telecommunications (cont'd.)
Nextel Communications,
Inc., Sr. Disc. Notes,
Zero Coupon
(until 9/1/98),
B3 $ 18,620 11.50%, 9/1/03.... $ 7,261,800
Zero Coupon
(until 2/15/99),
B3 16,000 9.75%, 8/15/04.... 5,600,000
Pricellular Wireless Corp.,
Sr. Sub. Disc.
Notes,
(cost
$9,142,607;
purchased-1994),
Zero Coupon
(until
11/15/97),
14.00%,
Caa 13,500(D) 11/15/01........ 8,910,000
USA Mobile
Communications,
Inc., Sr. Notes,
B3 8,000 14.00%, 11/1/04... 8,160,000
--------------
60,939,300
--------------
Textiles--1.9%
CMI Industries,
Inc.,
Sr. Sub. Notes,
B1 12,970 9.50%, 10/1/03.... 10,765,100
Dan River, Inc.,
Sr. Sub. Notes,
10.125%,
B3 12,000 12/15/03........ 10,800,000
Forstmann Textiles, Inc.,
Sr. Sub. Notes,
B3 10,633 14.75%, 4/15/99... 10,951,475
JPS Textile Group, Inc.,
Sr. Sub. Disc. Notes,
Caa 4,531 10.85%, 6/1/99.... 2,786,565
Sr. Sub. Notes,
Caa 3,771 10.25%, 6/1/99.... 2,319,164
Westpoint Stevens, Inc.,
Sr. Sub. Deb.,
9.375%,
B3 31,850 12/15/05........ 28,824,250
--------------
66,446,554
--------------
Transportation/Trucking/
Shipping--1.8%
Great Dane
Holdings, Inc.,
Sr. Sub. Notes,
Caa $ 19,750 12.75%, 8/1/01.... $ 19,552,500
Moran Transport
Co.,
Gtd. First Mtge.
Notes, Ser. B,
NR 4,000 11.75%, 7/15/04... 3,780,000
OMI Corp., Sr.
Notes,
B3 14,500 10.25%, 11/1/03... 12,470,000
TNT Transport,
Sr. Notes,
B1 10,000 11.50%, 4/15/04... 9,937,500
Transtar Holdings
L.P.,
Sr. Disc. Notes,
Zero Coupon
(until
12/15/99),
13.375%,
B-* 21,308 12/15/03........ 11,026,890
Trism, Inc.,
Sr. Sub. Notes,
10.75%,
B2 5,250 12/15/00........ 4,987,500
--------------
61,754,390
--------------
Total bonds
(cost
$3,554,622,839).. 3,277,240,808
--------------
<CAPTION>
Shares Preferred Stocks--0.7%
----------
<C> <C> <S> <C>
Color Tile, Inc.
$13.00
(cost
$5,000,000;
purchased-1992)... 5,000,000
200,000(D)
Color Tile, Inc.,
$14.50, Sr.
Cum............. 3,360,000
20,000(DD) Premium Standard
Farms, $12.50
(cost
$1,834,000;
purchased-1992)... 1,907,360
18,340(D)/(DD) Republic
Engineered
Steels, Inc.,
(cost
$2,593,264;
purchased-1994)... 2,636,564
234,361(D) Riggs National
Corp., $10.75... 5,493,880
224,240
</TABLE>
See Notes to Financial Statements.
B-35
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Preferred Stocks (cont'd.)
120,000(D)/(DD) SD Warren Co., $14.00
(cost $3,000,000;
purchased-1994)................. $ 3,120,000
443,487 UDC Homes, Inc.................. 1,108,718
West Federal Holdings, Inc.,
81,631(D)/(DD) Cum. Sr. Pfd.,
$15.50 (cost $8,000,000;
purchased-1988)................. 816
26,078(D)/(DD) Sr. Pfd., Ser A, $15.50
(cost $674,047;
purchased-1990)................. 261
--------------
Total preferred stocks
(cost $35,490,075).............. 22,627,599
--------------
Common StocksDD--0.2%
72,580(D) Dr. Pepper Bottling Co., Cl. A,
(cost $65,322;
purchased-1992)................. 254,030
428,333 EnviroSource, Inc............... 1,418,853
62,162 Gaylord Container Corp., Cl.
A............................... 567,228
323,881 Mayflower Group, Inc............ 2,914,929
31,559(D) Peachtree Cable Assn., Ltd.,
(cost $315,590;
purchased-1986)................. 307,700
60,000 Specialty Foods Acquisition
Corp............................ 45,000
1,122,335 Triton Group Ltd................ 1,753,648
--------------
Total common stocks
(cost $15,822,661).............. 7,261,388
--------------
<CAPTION>
Warrants Warrants(DD)--0.2%
- -----------
<C> <S> <C>
2,000 Apparel Ventures, Inc.,
expiring 12/15/00............... 90,000
22,841 Casino America, Inc.,
expiring 11/15/96............... 11,421
81,000 Casino Magic Corp.,
expiring 10/14/96............... 4,050
14,273(D) Dial Call Communications, Inc.,
(cost $0; purchased-1993)
expiring 12/15/05............... 17,841
742,254 Gaylord Container Corp.,
expiring 7/31/96................ 5,381,342
57,600 ICF Kaiser Int'l., Inc.,
expiring 12/31/96............... $ 57,600
70,000 Southdown, Inc.,
expiring 10/15/96............... 280,000
--------------
Total warrants
(cost $667,527)................. 5,842,254
--------------
Total long-term investments
(cost $3,606,603,102)........... 3,312,972,049
--------------
<CAPTION>
Principal SHORT-TERM INVESTMENTS--3.5%
Amount
(000)
- -----------
<C> <S> <C>
Time Deposits--3.5%
Chemical Bank NA,
$ 73,779 6.25%, 1/3/95................... 73,779,000
Mitsubishi Bank, Ltd.,
46,399 7.00%, 1/3/95................... 46,399,000
--------------
(cost $120,178,000)............. 120,178,000
--------------
Total Investments--98.7%
(cost $3,726,781,102; Note 4)... 3,433,150,049
Other assets in excess
of liabilities--1.3%............ 44,467,918
--------------
Net Assets--100%................ $3,477,617,967
--------------
--------------
</TABLE>
- ---------------
NR--Not rated by Moody's or Standard & Poor's.
PIK--Payment in kind securities.
* Standard & Poor's rating.
** Issuer is in default of January 15, 1995 and February 15, 1995 interest
payments.
(D) Indicates a restricted security; the aggregate cost of such
securities is $162,982,271. The aggregate value ($153,938,318) is
approximately 4.4% of net assets.
(D)(D) Non-income producing securities.
# Indicates a when-issued security.
L.P.--Limited Partnership.
@ Consists of more than one class of securities traded together as a unit;
generally bonds with attached stock or warrants.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
See Notes to Financial Statements.
B-36
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1994
-----------------
<S> <C>
Investments, at value (cost $3,726,781,102)........................................... $ 3,433,150,049
Cash.................................................................................. 557,025
Interest receivable................................................................... 76,477,787
Receivable for investments sold....................................................... 13,772,083
Receivable for Fund shares sold....................................................... 4,973,949
Other assets.......................................................................... 92,597
-----------------
Total assets...................................................................... 3,529,023,490
-----------------
Liabilities
Payable for Fund shares reacquired.................................................... 29,078,798
Payable for investments purchased..................................................... 15,648,583
Due to Distributor.................................................................... 2,123,284
Dividends payable..................................................................... 1,873,410
Accrued expenses...................................................................... 1,443,586
Due to Manager........................................................................ 1,237,862
-----------------
Total liabilities................................................................. 51,405,523
-----------------
Net Assets............................................................................ $ 3,477,617,967
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................ $ 4,532,568
Paid-in capital in excess of par.................................................... 4,343,639,953
-----------------
4,348,172,521
Undistributed net investment income................................................. 5,909,907
Accumulated net realized loss on investments........................................ (582,833,408)
Net unrealized depreciation of investments.......................................... (293,631,053)
-----------------
Net assets, December 31, 1994....................................................... $ 3,477,617,967
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($161,434,887 / 21,011,095 shares of common stock issued and outstanding)......... $7.68
Maximum sales charge (4% of offering price)......................................... .32
-----------------
Maximum offering price to public.................................................... $8.00
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($3,311,323,471 / 431,612,306 shares of common stock issued and outstanding)...... $7.67
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($4,859,609 / 633,429 shares of common stock issued and outstanding).............. $7.67
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
B-37
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1994
-----------------
<S> <C>
Income
Interest............................ $ 394,251,049
Dividends........................... 3,933,771
-----------------
Total income...................... 398,184,820
-----------------
Expenses
Distribution fee--Class A............. 248,276
Distribution fee--Class B............. 26,750,316
Distribution fee--Class C............. 8,870
Management fee........................ 15,562,791
Transfer agent's fees and expenses.... 4,642,000
Reports to shareholders............... 1,505,000
Franchise taxes....................... 735,000
Custodian's fees and expenses......... 539,000
Registration fees..................... 141,000
Insurance expense..................... 90,000
Legal fees............................ 75,000
Audit fee............................. 66,000
Directors' fees....................... 45,200
Miscellaneous......................... 56,896
-----------------
Total operating expenses.......... 50,465,349
Loan commitment fees (Note 2)......... 187,500
-----------------
Total expenses.................... 50,652,849
-----------------
Net investment income................. 347,531,971
-----------------
Realized and Unrealized
Loss on Investments
Net realized loss on investment
transactions........................ (17,213,168)
Net change in unrealized depreciation
of
investments......................... (437,098,902)
-----------------
Net loss on investments............... (454,312,070)
-----------------
Net Decrease in Net Assets
Resulting from Operations............. $ (106,780,099)
-----------------
-----------------
</TABLE>
PRUDENTIAL HIGH YIELD FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) -------------------------------
in Net Assets 1994 1993
-------------- --------------
<S> <C> <C>
Operations
Net investment
income............... $ 347,531,971 $ 331,613,772
Net realized gain
(loss) on
investment
transactions......... (17,213,168) 133,427,257
Net change in
unrealized
appreciation/depreciation
of investments....... (437,098,902) 67,689,568
-------------- --------------
Net increase (decrease)
in net assets
resulting from
operations........... (106,780,099) 532,730,597
-------------- --------------
Net equalization
credits.............. 53,408 1,248,705
-------------- --------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A............ (16,316,609) (14,769,464)
Class B............ (331,100,240) (316,844,308)
Class C............ (115,122) --
-------------- --------------
(347,531,971) (331,613,772)
-------------- --------------
Dividends in excess
of net investment
income
Class A............ (381,078) (186,125)
Class B............ (9,346,220) (3,992,885)
Class C............ (3,979) --
-------------- --------------
(9,731,277) (4,179,010)
-------------- --------------
Fund share transactions
(Note 5)
Net proceeds from
shares
issued............. 1,151,307,757 1,608,810,431
Net asset value of
shares
issued to
shareholders in
reinvestment of
dividends and
distributions...... 169,199,573 159,560,823
Cost of shares
reacquired......... (1,294,875,001) (1,044,468,067)
-------------- --------------
Increase in net
assets from Fund
share
transactions....... 25,632,329 723,903,187
-------------- --------------
Total increase
(decrease)............. (438,357,610) 922,089,707
Net Assets
Beginning of year...... 3,915,975,577 2,993,885,870
-------------- --------------
End of year............ $3,477,617,967 $3,915,975,577
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-38
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
Notes to Financial Statements
Prudential High Yield Fund, Inc. (the ``Fund''), is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The primary investment objective of the Fund is to maximize current
income through investment in a diversified portfolio of high yield fixed-income
securities which, in the opinion of the Fund's investment adviser, do not
subject the Fund to unreasonable risks. As a secondary investment objective, the
Fund will seek capital appreciation but only when consistent with its primary
objective. Lower rated or unrated (i.e. high yield) securities are more likely
to react to developments affecting market risk (general market liquidity) and
credit risk (an issuer's inability to meet principal and interest payments on
its obligations) than are more highly rated securities, which react primarily to
movements in the general level of interest rates. The ability of issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Security Valuation: Portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at prices provided by
principal market makers and pricing agents. Any security for which the primary
market is on an exchange is valued at the last sales price on such exchange on
the day of valuation or, if there was no sale on such day, the last bid price
quoted on such day. Securities issued in private placements are valued at the
mean between the bid and asked prices provided by principal market makers. Any
security for which a reliable market quotation is unavailable is valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost, which approximates market value.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, under triparty repurchase
agreements as the case may be, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest and, to the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
The Fund may invest up to 10% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition under
securities law (``restricted securities''). Certain issues of restricted
securities held by the Fund at December 31, 1994 include registration rights
under which the Fund may demand registration by the issuer, some of which are
currently under contract to be registered. Restricted securities are valued
pursuant to the valuation procedures noted above.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of portfolio
securities are calculated on an identified cost basis. Interest income is
recorded on an accrual basis and dividend income is recorded on the ex-dividend
date. The Fund accretes original issue discounts as adjustments to interest
income. Income from payment in kind bonds is recorded daily based on an
effective interest method.
Net investment income, (other than distribution fees), and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund
based upon the relative proportion of net assets of each class at the beginning
of the day.
Federal Income Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund declares daily and pays dividends of net
investment income monthly and makes distributions at least annually of any net
capital gains. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for market discount and wash sales.
B-39
<PAGE>
Equalization: The Fund follows the accounting practice known as equalization, by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with AICPA Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to increase undistributed net investment
income by $2,891,897, increase accumulated net realized loss on investments by
$2,866,418 and decrease paid-in capital by $25,479. This was primarily the
result of market discount incurred for the year ended December 31, 1994. Net
investment income, net realized gains and net assets were not affected by this
change.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50% of the Fund's average daily net assets up to $250 million,
.475% of the next $500 million, .45% of the next $750 million, .425% of the next
$500 million, .40% of the next $500 million, .375% of the next $500 million and
.35% of the Fund's average daily net assets in excess of $3 billion.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B distribution plans under which the distribution plans became
compensation plans, effective August 1, 1994. Prior thereto, the distribution
plans were reimbursement plans, under which PMFD and PSI were reimbursed for
expenses actually incurred by them up to the amount permitted under the Class A
and Class B Plans, respectively. The Fund is not obligated to pay any prior or
future excess distribution costs (costs incurred by the Distributors in excess
of distribution fees paid by the Fund or contingent deferred sales charges
received by the Distributors). The rate of the distribution fees charged to
Class A and Class B shares of the Fund did not change under the amended plans of
distribution. The Fund began offering Class C shares on August 1, 1994.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .75 of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .15 of 1%, .75 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the fiscal year ended December 31, 1994.
PMFD has advised the Fund that it has received approximately $1,162,700 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended December 31, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
PSI has advised the Fund that for the fiscal year ended December 31, 1994, it
received approximately $7,028,300 and $200 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
The Fund has entered into a credit agreement (the ``Agreement'') with State
Street Bank and Trust Co. with a maximum commitment under the Agreement of
$75,000,000 which expires on December 2, 1995. Interest on any such borrowings
outstanding will be at market rates. The Fund has not borrowed any monies
pursuant to the Agreement but has paid commitment fees at an annual rate of .25
of 1% on the $75,000,000 (unused portion of the credit facility).
B-40
<PAGE>
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the year ended December 31, 1994, the Fund incurred fees of approximately
$3,484,000 for the services of PMFS. As of December 31, 1994, $283,000 of such
fees were due to PMFS. Transfer agent fees and expenses in the Statement of
Operations include certain out-of-pocket expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the year ended
December 31, 1994 were $2,645,518,074 and $2,642,120,439, respectively.
The federal income tax basis of the Fund's investments, including short-term
investments, as of December 31, 1994 was $3,728,084,787; accordingly, net
unrealized depreciation for federal income tax purposes was $294,934,738 (gross
unrealized appreciation--$23,985,623; gross unrealized
depreciation--$318,920,361).
For federal income tax purposes, the Fund has a capital loss carryforward as
of December 31, 1994 of approximately $548,496,700 of which $34,055,200 expires
in 1997, $326,104,800 expires in 1998, $77,895,200 expires in 1999 and
$110,441,500 expires in 2000. Accordingly, no capital gains distribution is
expected to be paid to shareholders until net gains have been realized in excess
of the aggregate of such amounts.
The Fund will elect to treat net capital losses of approximately $33,033,000
incurred in the two month period ended December 31, 1994 as having been incurred
in the following fiscal year.
Note 5. Capital The Fund offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 4.00%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase commencing in or about February 1995.
The Fund has 1.5 billion shares of $.01 par value common stock authorized;
designated 375 million of Class A shares, 750 million of Class B shares, and 375
million of Class C shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------- ------------ --------------
<S> <C> <C>
Year ended December 31,
1994:
Shares sold............... 19,908,158 $ 161,976,895
Shares issued in reinvest-
ment of dividends and
distributions........... 1,113,364 9,044,345
Shares reacquired......... (19,711,310) (160,632,506)
------------ --------------
Net increase in shares
outstanding............. 1,310,212 $ 10,388,734
------------ --------------
------------ --------------
Year ended December 31,
1993:
Shares sold............... 18,365,837 $ 156,524,638
Shares issued in reinvest-
ment of dividends and
distributions........... 977,024 8,361,257
Shares reacquired......... (12,601,264) (107,709,836)
------------ --------------
Net increase in shares
outstanding............. 6,741,597 $ 57,176,059
------------ --------------
------------ --------------
Class B
- --------------------------
Year ended December 31,
1994:
Shares sold............... 118,792,264 $ 983,331,141
Shares issued in reinvest-
ment of dividends and
distributions........... 19,713,254 160,105,285
Shares reacquired......... (138,058,355) (1,133,205,930)
------------ --------------
Net increase in shares
outstanding............. 447,163 $ 10,230,496
------------ --------------
------------ --------------
Year ended December 31,
1993:
Shares sold............... 170,594,560 $1,452,285,793
Shares issued in reinvest-
ment of dividends and
distributions........... 17,695,392 151,199,566
Shares reacquired......... (109,825,578) (936,758,231)
------------ --------------
Net increase in shares
outstanding............. 78,464,374 $ 666,727,128
------------ --------------
------------ --------------
Class C
- --------------------------
August 1, 1994* through
December 31, 1994:
Shares sold............... 757,753 $ 5,999,721
Shares issued in reinvest-
ment of dividends....... 6,428 49,943
Shares reacquired......... (130,752) (1,036,565)
------------ --------------
Net increase in shares
outstanding............. 633,429 $ 5,013,099
<CAPTION>
------------ --------------
------------ --------------
</TABLE>
- ---------------
*Commencement of offering of Class C shares.
B-41
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------------- -------------------------------------
January 22,
1990D
Year Ended December 31, through Year Ended December 31,
---------------------------------------- December 31, -------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992
-------- -------- -------- ------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.............. $ 8.70 $ 8.19 $ 7.88 $ 6.72 $ 8.49 $ 8.69 $ 8.19 $ 7.88
-------- -------- -------- ------- -------- ---------- ---------- ----------
Income from
investment
operations
Net investment
income.............. .80 .84 .90 .93 1.01 .76 .79 .85
Net realized and
unrealized gain
(loss) on
investments......... (1.00) .52 .32 1.26 (1.74) (1.00) .51 .32
-------- -------- -------- ------- ------ ---------- ---------- ----------
Total from
investment
operations........ (.20) 1.36 1.22 2.19 (.73) (.24) 1.30 1.17
-------- -------- -------- ------- ------ ---------- ---------- ----------
Less distributions
Dividends from net
investment income... (.80) (.84) (.90) (.93) (1.01) (.76) (.79) (.85)
Dividends in excess
of net investment
income.............. (.02) (.01) -- -- -- (.02) (.01) --
Distributions from
paid-in
capital in excess of
par................. -- -- (.01) (.10) (.03) -- -- (.01)
-------- -------- -------- ------- ------ ---------- ---------- ----------
Total
distributions..... (.82) (.85) (.91) (1.03) (1.04) (.78) (.80) (.86)
-------- -------- -------- ------- ------ ---------- ---------- ----------
Net asset value,
end of period....... $ 7.68 $ 8.70 $ 8.19 $ 7.88 $ 6.72 $ 7.67 $ 8.69 $ 8.19
-------- -------- -------- ------- ------ ---------- ---------- ----------
-------- -------- -------- ------- ------ ---------- ---------- ----------
TOTAL RETURN#........ (2.35)% 17.32% 15.97% 34.29% (9.15)% (2.92)% 16.54% 15.30%
-------- -------- -------- ------- ------ ---------- ---------- ----------
-------- -------- -------- ------- ------ ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000)........ $161,435 $171,364 $106,188 $54,025 $ 21,448 $3,311,323 $3,745,985 $2,887,698
Average net assets
(000)............... $165,517 $149,190 $ 81,129 $37,194 $ 15,594 $3,566,709 $3,389,439 $2,582,922
Ratios to average net
assets:##
Expenses, including
distribution
fees.............. .78% .76% .85% .88% .93%* 1.38% 1.36% 1.45%
Expenses, excluding
distributions
fees.............. .63% .61% .70% .73% .78%* .63% .61% .70%
Net investment
income............ 9.86% 9.93% 10.96% 12.73% 13.58%* 9.28% 9.35% 10.29%
Portfolio turnover
rate................ 74% 85% 68% 51% 40% 74% 85% 68%
<CAPTION>
Class C
------------
August 1,
1994DD
through
December 31,
1991 1990 1994
---------- ---------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.............. $ 6.71 $ 8.52 $ 8.05
---------- ---------- -----
Income from
investment
operations
Net investment
income.............. .88 1.00 .32
Net realized and
unrealized gain
(loss) on
investments......... 1.26 (1.76) (.37)
---------- ---------- -----
Total from
investment
operations........ 2.14 (.76) (.05)
---------- ---------- -----
Less distributions
Dividends from net
investment income... (.88) (1.02) (.32)
Dividends in excess
of net investment
income.............. -- -- (.01)
Distributions from
paid-in
capital in excess of
par................. (.09) (.03) --
---------- ---------- -----
Total
distributions..... (.97) (1.05) (.33)
---------- ---------- -----
Net asset value,
end of period....... $ 7.88 $ 6.71 $ 7.67
---------- ---------- -----
---------- ---------- -----
TOTAL RETURN#........ 33.62% (9.52)% (0.79)%
---------- ---------- -----
---------- ---------- -----
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000)........ $2,199,127 $1,626,067 $4,860
Average net assets
(000)............... $1,970,257 $1,994,229 $2,840
Ratios to average net
assets:##
Expenses, including
distribution
fees.............. 1.48% 1.55% 1.48%*
Expenses, excluding
distributions
fees.............. .73% .80% .73%*
Net investment
income............ 11.65% 13.34% 9.80%*
Portfolio turnover
rate................ 51% 40% 74%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
DD Commencement of offering Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distribtuions. Total returns for periods of less than a
full year are not annualized.
## Because of the event referred to in DD and the timing of such, the
ratios for the Class C shares are not necessarily comparable to that of
Class A or B shares and are not necessarily indicative of future ratios.
See Notes to Financial Statements.
B-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Prudential High Yield Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential High Yield Fund, Inc.
(the ``Fund'') at December 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 21, 1995
B-43
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial statements included in the Prospectus constituting Part A
of this Registration Statement:
Financial Highlights for each of the ten years in the period ended
December 31, 1994.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1994.
Statement of Assets and Liabilities at December 31, 1994.
Statement of Operations for the year ended December 31, 1994.
Statement of Changes in Net Assets for the years ended December 31,
1993 and December 31, 1994.
Notes to Financial Statements.
Financial Highlights with respect to each of the five years in the
period ended December 31, 1994.
Report of Independent Accountants.
(b) Exhibits:
1. (a) Restated Articles of Incorporation. Incorporated by reference
to Exhibit 1 to Post-Effective Amendment No. 22 to the
Registration Statement filed on Form N-1A via EDGAR on March 1,
1994 (File No. 2-63394).
(b) Articles of Amendment.*
(c) Articles Supplementary.*
2. Amended and Restated By-Laws. Incorporated by reference to Exhibit
2 to Post-Effective Amendment No. 22 to the Registration Statement
filed on Form N-1A via Edgar on March 1, 1994 (file No. 2-63394).
4. Instruments defining rights of holders of the securities being
offered. Incorporated by reference to Exhibits Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit
5(a) to Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A (File No. 2-63394).
(b) Management Agreement, as amended, between the Registrant and
Prudential Mutual Fund Management, Inc., incorporated by reference
to Exhibit 5(b) to Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A (File No. 2-63394).
(c) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation,
incorporated by reference to Exhibit 5(b) to Post-Effective
Amendment No. 15 to Registration Statement on Form N-1A (File No.
2-63394).
6. (a) Selected Dealers Agreement, incorporated by reference to
Exhibit 6(d) to Post-Effective Amendment No. 2 to Registration
Statement on Form N-1A (File No. 2-63394).
(b) Distribution and Service Agreement for Class A Shares.*
(c) Distribution and Service Agreement for Class B Shares.*
(d) Distribution and Service Agreement for Class C Shares.*
8. Custodian Agreement dated July 26, 1990, between the Registrant and
State Street Bank and Trust Company, incorporated by reference to
Exhibit 8 to Post-Effective Amendment No.19 to Registration
Statement on Form N-1A (File No.2-63394).
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 9(b) to Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A (File No. 2-63394).
10. Opinion of Sullivan & Cromwell.*
11. Consent of Independent Accountants.*
15. (a) Distribution and Service Plan for Class A Shares.*
(b) Distribution and Service Plan for Class B Shares.*
(c) Distribution and Service Plan for Class C Shares.*
C-1
<PAGE>
16. (a) Schedule of Calculation of Yield and Average Annual Total
Return (Class B Shares), incorporated by reference to Exhibit 16 to
Post-Effective Amendment No. 15 to Registration Statement on Form
N-1A (File No. 2-63394).
(b) Schedule of Calculation of Average Annual Total Return (Class A
Shares), incorporated by reference to Exhibit 16(b) to
Post-Effective Amendment No.19 to Registration Statement on Form
N-1A (File No.2-63394).
(c) Schedule of Calculation of Aggregate Total Return for Class A
and Class B shares, incorporated by reference to Exhibit 16(c) to
Post-Effective Amendment No. 21 to Registration Statement on Form
N-1A (File No. 2-63394).
27. Financial Data Schedule.*
Other Exhibits
Power of Attorney for:
Lawrence C. McQuade**
Delayne D. Gold**
Arthur Hauspurg**
Harry A. Jacobs, Jr.**
- -----------------
*Filed herewith.
**Executed copies filed under Other Exhibits to Post-Effective Amendment No. 15
to the Registration Statement on Form N-1A (File No. 2-63394).
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of February 3, 1995 there were 30,554, 67,940 and 183 record holders of
Class A, Class B and Class C shares of common stock, respectively, $.01 par
value per share, of the Registrant.
Item 27. Indemnification.
As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibits 6(b),
6(c) and 6(d) to the Registration Statement), each Distributor of the Registrant
may be indemnified against liabilities which it may incur, except liabilities
arising from bad faith, gross negligence, willful misfeasance or reckless
disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant intends to purchase an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
C-2
<PAGE>
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Sections 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
(a) Prudential Mutual Fund Management, Inc.
See "How the Fund is Managed-Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1994).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President, Director of Marketing and Director, PMF;
President, Director Senior Vice President, Prudential Securities Incorporated
of Marketing (Prudential Securities); Chairman and Director of Prudential
and Director Mutual Fund Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and Director,
President, General PMF and PMFD; Senior Vice President, Prudential Securities;
Counsel, Secretary Director, Prudential Mutual Fund Services, Inc., (PMFS)
and Director
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and Administrative Officer,
President, Chief Treasurer and Director, PMF; Senior Vice President, Prudential
Financial and Securities; Executive Vice President, Treasurer, Comptroller
Administrative and Director, PMFD; Director, PMFS
Officer, Treasurer
and Director
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer and Director,
PMFD; Chief Executive Officer and Director, PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF; Executive
Executive Officer and Vice President, Director and Member of Operating Committee,
Director Prudential Securities; Director, PSG; Executive Vice President, PIC;
Director, PMFD; Director, PMFS
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant Secretary, PMF;
President, Senior Senior Vice President and Senior Counsel, Prudential Securities
Counsel and
Assistant Secretary
</TABLE>
(b) Prudential Investment Corporation (PIC)
See "How the Fund is Managed-Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07102.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President, Senior Vice President, Chief Financial and Compliance Officer, PIC;
Chief Financial and Vice President, Prudential
Compliance Officer
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice President and
51 JFK Parkway and Director Director, PIC
Short Hills, NJ 07078
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC
Harry E. Knapp, Jr. President, Director President, Director and Chief Executive Officer, PIC; Vice President,
and Chief Prudential
Executive Officer
William P. Link Senior Vice Executive Vice President, Prudential; Senior Vice President, PIC
Four Gateway Center President
Newark, NJ 07102
Richard A. Redeker Executive Vice President, Chief Executive Officer and Director, PMF; Executive Vice
President President, Director and Member of Operating Committee, Prudential
Securities; Director, PSG; Executive Vice President, PIC; Director,
PMFD; Director, PMFS
Arthur F. Ryan Director Chairman of the Board, President and Chief Executive Officer,
Prudential; Director, PIC; Chairman of the Board and Director, PSG
Eric A. Simonson Director Vice President and Director, PIC; Executive Vice President, Prudential
Claude J. Zinngrabe, Jr. Executive Vice Vice President, Prudential; Executive Vice President, PIC
President
</TABLE>
Item 29. Principal Underwriters
(a)(i) Prudential Securities
Prudential Securities Incorporated is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust for
Class B shares of Prudential Adjustable Rate Securities Fund, Inc., and for
Class B and Class C shares ofPrudential Allocation Fund, Prudential California
Municipal Fund (California Income Series and California Series), Prudential
Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Natural Resources Fund,
Inc., Prudential GNMA Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc.,
Prudential IncomeVertible (R) Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund (except Connecticut Money Market Series,
Massachusetts Money Market Series, New York Money Market Series, and New Jersey
Money Market Series), Prudential National Municipals Fund, Inc., Prudential
Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund, Inc.,
Prudential Strategist Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential U.S. Government Fund, Prudential Utility Fund, Inc., Global Utility
Fund, Inc., The BlackRock Government Income Trust and Nicholas-Applegate Fund,
Inc. (Nicholas-Applegate Growth Equity Fund). Prudential Securities is also a
depositor for the following unit investment trusts:
C-4
<PAGE>
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
MoneyMart Assets (d/b/a Prudential MoneyMart Assets), Prudential Municipal
Series Fund (Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series and New Jersey Money Market Series),
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special Money
Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund), and for Class A shares of Prudential Adjustable Rate
Securities Fund, Inc., Prudential Allocation Fund, Prudential California
Municipal Fund (California Income Series and California Series), Prudential
Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Natural Resources Fund,
Inc., Prudential GNMA Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc.,
Prudential IncomeVertible(R) Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund (Arizona Series, Florida Series, Georgia
Series, Hawaii Income Series, Maryland Series, Massachusetts Series, Michigan
Series, Minnesota Series, New Jersey Series, North Carolina Series, Ohio Series
and Pennsylvania Series), Prudential National Municipals Fund, Inc., Prudential
Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund, Inc.,
Prudential Strategist Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential U.S. Government Fund, Prudential Utility Fund, Inc., Global Utility
Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund) and The BlackRock Government Income Trust.
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
<S> <C> <C>
Alan D. Hogan Executive Vice President, None
Chief Administrative
Officer and Director
George A. Murray Executive Vice President and Director None
John P. Murray Executive Vice President and Director of Risk None
Management
Leland B. Paton Executive Vice President and None
Director
Vincent T. Pica, II Director, Member of Operating Committee None
and Executive Vice President
Richard A. Redeker Director Director
Hardwick Simmons Chief Executive Officer, None
President and Director
Lee B. Spencer, Jr. General Counsel, Executive Vice President None
and Director
</TABLE>
C-5
<PAGE>
(ii) Information concerning the officers and directors of Prudential Mutual
Fund Distributors, Inc. is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
<S> <C> <C>
Joanne Accurso-Soto Vice President None
Dennis Annarumma Vice President, Assistant Treasurer and None
Assistant Comptroller
Phyllis J. Berman Vice President None
Brendan D. Boyle Chairman and Director None
Stephen P. Fisher Vice President None
Frank W. Giordano Executive Vice President, General Counsel, None
Secretary and Director
Robert F. Gunia Executive Vice President, Treasurer, Vice President
Comptroller and Director
Timothy J. O'Brien President, Chief Executive Officer, Chief None
Operating Officer and Director
Richard A. Redeker Director Director
Andrew J. Varley Vice President None
Anita L. Whelan Vice President and Assistant Secretary None
</TABLE>
- --------------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey 07102, the Registrant, One Seaport Plaza,
New York, New York, 10292 and Prudential Mutual Fund Services, Inc., Raritan
Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-1(b)(5),
(6), (7), (9), (10) and (11) and 31a-1(f) will be kept at 2 Gateway Center,
Newark, New Jersey, documents required by Rules 31a-1(b)(4) and (11) and
31a-1(d) at One Seaport Plaza and the remaining accounts, books and other
documents required by such other pertinent provisions of Section 31(a) and the
Rules promulgated thereunder will be kept by State Street Bank and Trust Company
and Prudential Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions "How the Fund is
Managed-Manager" and "How the Fund is Managed-Distributor" in the Prospectus and
the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
Item 32. Undertakings
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 24th day of February, 1995.
PRUDENTIAL HIGH YIELD FUND, INC.
/s/ Lawrence C. McQuade
--------------------------------------------------
(Lawrence C. McQuade, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Lawrence C. McQuade President and Director February 24, 1995
- -----------------------------
Lawrence C. McQuade
/s/ Delayne D. Gold Director February 24, 1995
- -----------------------------
Delayne D. Gold
/s/ Arthur Hauspurg Director February 24, 1995
- -----------------------------
Arthur Hauspurg
/s/ Harry A. Jacobs, Jr. Director February 24, 1995
- -----------------------------
Harry A. Jacobs, Jr.
/s/ Stephen P. Munn Director February 24, 1995
- -----------------------------
Stephen P. Munn
/s/ Louis A. Weil, III Director February 24, 1995
- -----------------------------
Louis A. Weil, III
/s/ Grace Torres Treasurer and Principal February 24, 1995
- ----------------------------- Financial and Accounting
Grace Torres Officer
<PAGE>
EXHIBIT INDEX
1. (a) Restated Articles of Incorporation. Incorporated by reference to Exhibit
1 to Post-Effective Amendment No. 22 to the Registration Statement filed on
Form N-1A via EDGAR on March 1, 1994 (File No. 2-63394).
(b) Articles of Amendment.*
(c) Articles Supplementary.*
2. Amended and Restated By-Laws. Incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 22 to the Registration Statement filed on Form
N-1A via Edgar on March 1, 1994 (file No. 2-63394).
4. Instruments defining rights of holders of the securities being offered.
Incorporated by reference to Exhibits Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc., incorporated by reference to Exhibit 5 (a) to
Post-Effective Amendment No. 15 to Registration Statement on Form N-1A (File
No. 2-63394).
(b) Management Agreement, as amended, between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 18 to Registration Statement on Form N-1A (File
No. 2-63394).
(c) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation, incorporated by reference to
Exhibit 5(b) to Post-Effective Amendment No. 15 to Registration Statement on
Form N-1A (File No. 2-63394).
6. (a) Selected Dealers Agreement, incorporated by reference to Exhibit 6(d) to
Post-Effective Amendment No. 2 to Registration Statement on Form N-1A (File
No. 2-63394).
(b) Distribution and Service Agreement for Class A Shares.*
(c) Distribution and Service Agreement for Class B Shares.*
(d) Distribution and Service Agreement for Class C Shares.*
8. Custodian Agreement dated July 26, 1990, between the Registrant and State
Street Bank and Trust Company, incorporated by reference to Exhibit 8 to
Post-Effective Amendment No.19 to Registration Statement on Form N-1A (File
No.2-63394).
9. Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc., incorporated by reference to Exhibit 9(b) to
Post-Effective Amendment No. 14 to Registration Statement on Form N-1A (File
No. 2-63394).
10. Opinion of Sullivan & Cromwell.*
11. Consent of Independent Accountants.*
15. (a) Distribution and Service Plan for Class A Shares.*
(b) Distribution and Service Plan for Class B Shares.*
(c) Distribution and Service Plan for Class C Shares.*
16. (a) Schedule of Calculation of Yield and Average Annual Total Return (Class
B Shares), incorporated by reference to Exhibit 16 to Post-Effective
Amendment No. 15 to Registration Statement on Form N-1A (File No. 2-63394).
(b) Schedule of Calculation of Average Annual Total Return (Class A Shares),
incorporated by reference to Exhibit 16(b) to Post-Effective Amendment No.19
to Registration Statement on Form N-1A (File No.2-63394).
(c) Schedule of Calculation of Aggregate Total Return for Class A and Class
B shares, incorporated by reference to Exhibit 16(c) to Post-Effective
Amendment No. 21 to Registration Statement on Form N-1A (File No. 2-63394).
27. Financial Data Schedule.*
Other Exhibits
Power of Attorney for:
Lawrence C. McQuade**
Delayne D. Gold**
Arthur Hauspurg**
Harry A. Jacobs, Jr.**
- -----------------
*Filed herewith.
**Executed copies filed under Other Exhibits to Post-Effective Amendment No. 15
to the Registration Statement on Form N-1A (File No. 2-63394).
Exhibit 1(b)
ARTICLES OF AMENDMENT
OF
PRUDENTIAL-BACHE HIGH YIELD FUND, INC.
PRUDENTIAL-BACHE HIGH YIELD FUND, INC., a Maryland corporation having
its principal offices in Baltimore, Maryland and New York, New York (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Article I of the Corporation's Charter is
hereby amended in its entirety to read as follows:
The name of the corporation (hereinafter called the
"Corporation") is Prudential High Yield Fund, Inc.
SECOND: Article IV, Section 1 of the Corporation's
Charter is hereby amended in its entirety to read as follows:
ARTICLE IV
Common Stock
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 1.5 billion shares of the par value
of $.01 per share and of the aggregate par value of $15,000,000 to be divided
initially into three classes, consisting of 375,000,000 shares of Class A Common
Stock, 750,000,000 shares of Class B Common Stock and 375,000,000 shares of
Class C Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock of
the Corporation shall represent the same interest in the Corporation
and have identical voting, dividend, liquidation and other rights
except that (i) Expenses related to the distribution of each class of
shares shall be borne solely by such class; (ii) The bearing of such
expenses solely by shares of each class shall be appropriately
reflected (in the manner determined by the Board of Directors) in the
net asset value, dividends, distribution and liquidation rights of the
shares of such class; (iii) The Class A Common Stock shall be subject
to a front-end sales load and a Rule 12b-1 distribution fee as
<PAGE>
determined by the Board of Directors from time to time; (iv) The Class
B Common Stock shall be subject to a contingent deferred sales charge
and a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time; and (v) The Class C Common Stock shall be
subject to a contingent deferred sales charge and a Rule 12b-1
distribution fee as determined by the Board of Directors from time to
time. All shares of each particular class shall represent an equal
proportionate interest in that class, and each share of any particular
class shall be equal to each other share of that class.
(b) Each share of the Class B Common Stock of the Corporation
shall be converted automatically, and without any action or choice on
the part of the holder thereof, into shares (including fractions
thereof) of the Class A Common Stock of the Corporation (computed in
the manner hereinafter described), at the applicable net asset value
per share of each Class, at the time of the calculation of the net
asset value of such Class B Common Stock at such times, which may vary
between shares originally issued for cash and shares purchased through
the automatic reinvestment of dividends and distributions with respect
to Class B Common Stock (each "Conversion Date"), determined by the
Board of Directors in accordance with applicable laws, rules,
regulations and interpretations of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. and
pursuant to such procedures as may be established from time to time by
the Board of Directors and disclosed in the Corporation's then current
prospectus for such Class A and Class B Common Stock.
(c) The number of shares of the Class A Common Stock of the
Corporation into which a share of the Class B Common Stock is converted
pursuant to Paragraph (1)(b) hereof shall equal the number (including
for this purpose fractions of a share) obtained by dividing the net
asset value per share of the Class B Common Stock for purposes of sales
and redemptions thereof at the time of the calculation of the net asset
value on the Conversion Date by the net asset value per share of the
Class A Common Stock for purposes of sales and redemptions thereof at
the time of the calculation of the net asset value on the Conversion
Date.
(d) On the Conversion Date, the shares of the Class B Common
Stock of the Corporation converted into shares of the Class A Common
Stock will cease to accrue dividends and will no longer be outstanding
and the rights of the holders thereof will cease (except the
2
<PAGE>
right to receive declared but unpaid dividends to the Conversion Date).
(e) The Board of Directors shall have full power and authority
to adopt such other terms and conditions concerning the conversion of
shares of the Class B Common Stock to shares of the Class A Common
Stock as they deem appropriate; provided such terms and conditions are
not inconsistent with the terms contained in this Section 1 and subject
to any restrictions or requirements under the Investment Company Act of
1940 and the rules, regulations and interpretations thereof promulgated
or issued by the Securities and Exchange Commission or any conditions
or limitations contained in an order issued by the Securities and
Exchange Commission applicable to the Corporation, or any restrictions
or requirements under the Internal Revenue Code of 1986, as amended,
and the rules, regulations and interpretations promulgated or issued
thereunder.
THIRD: (a) As of immediately before the amendment
the total number of shares of stock of all classes which the Corporation has
authority to issue is 1,000,000,000 Shares, all of which are Common Stock (par
value $ .01 per share).
(b) As amended, the total number of shares
of stock of all classes which the Corporation has authority to issue is
1,500,000,000 shares, all of which are Common Stock (par value $ .01 per share).
(c) The aggregate par value of all shares
having a par value is $10,000,000 before the amendment and $15,000,000 as
amended.
(d) A description, as amended, of the Class
A Common Stock, Class B Common Stock and Class C Common Stock is as set forth
above.
3
<PAGE>
FOURTH: The foregoing amendments to the Charter of
the Corporation have been advised by the Board of Directors and approved by a
majority of the shareholders of the Corporation.
FIFTH: The foregoing amendments to the Charter of
the Corporation shall become effective at 9:00 a.m. on August 1, 1994.
IN WITNESS WHEREOF, PRUDENTIAL-BACHE HIGH YIELD FUND, INC. has
caused these presents to be signed in its name and on its behalf by its
President and attested by its Secretary on July 27, 1994.
PRUDENTIAL-BACHE HIGH YIELD
FUND, INC.
By /s/ Lawrence C. McQuade
------------------------
Lawrence C. McQuade
President
Attest: /s/ S. Jane Rose
-----------------
S. Jane Rose
Secretary
4
<PAGE>
The undersigned, President of PRUDENTIAL-BACHE HIGH YIELD FUND, INC.,
who executed on behalf of said corporation the foregoing amendments to the
Charter of which this certificate is made a part, hereby acknowledges in the
name and on behalf of said corporation, the foregoing amendments to the Charter
to be the corporate act of said corporation and further certifies that, to the
best of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/ Lawrence C. McQuade
------------------------
Lawrence C. McQuade
5
Exhibit 1(c)
ARTICLES SUPPLEMENTARY
OF
PRUDENTIAL HIGH YIELD FUND, INC.
* * * * * * * * *
Pursuant to Section 2-208.1
of the Maryland General Corporation Law
* * * * * * * * *
PRUDENTIAL HIGH YIELD FUND, INC., a Maryland corporation having its
principal office in New York, New York (hereinafter called the Corporation),
hereby certifies to the Maryland Department of Assessments and Taxation that:
1. The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
2. Heretofore the Corporation was authorized to issue 1.5 billion
shares of capital stock of the par value of one cent ($.01) per share, having an
aggregate par value of $15,000,000, divided into three classes, consisting of
375 million shares of Class A Common Stock, 750 million shares of Class B Common
Stock and 375 million shares of Class C Common Stock.
3. The Board of Directors of the Corporation on February 6, 1995, duly
adopted a resolution in accordance with Section 2-105(c) of the Maryland General
Corporation Law increasing the total number of the shares of capital stock which
the Corporation has authority to issue.
4. Pursuant to the resolution adopted by the Board of Directors
of the Corporation on February 6, 1995, the Corporation is authorized to issue
3 billion shares of capital stock, of the
<PAGE>
par value of one cent ($.01) per share, having an aggregate par value of
$30,000,000, divided into three classes, consisting of 1 billion shares of Class
A Common Stock, 1 billion shares of Class B Common Stock and 1 billion shares
Class C Common Stock.
5. (a) As of immediately before the increase the total number of shares
of stock of all classes which the Corporation has authority to issue is 1.5
billion shares of Common Stock (par value $.01 per share).
(b) As increased the total number of shares of stock of all classes
which the Corporation has authority to issue is 3 billion shares of Common Stock
(par value $.01 per share).
(c) The aggregate par value of all shares having a par value is
$15,000,000 before the increase and $30,000,000 as increased.
IN WITNESS WHEREOF, PRUDENTIAL HIGH YIELD FUND, INC. has
caused these presents to be signed in its name and on its behalf by
its President and attested by its Secretary on February 6, 1995.
PRUDENTIAL HIGH YIELD FUND, INC.
By: /s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
President
ATTEST:
/s/ S. Jane Rose
- ----------------
S. Jane Rose
Secretary
<PAGE>
The undersigned, President of PRUDENTIAL HIGH YIELD FUND, INC. who
executed on behalf of said corporation the foregoing Articles Supplementary of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said corporation, the foregoing Articles Supplementary to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all materials respects, under the
penalties of perjury.
/s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
[art/by]hyf-art2.sup
Exhibit 6(b)
PRUDENTIAL HIGH YIELD FUND, INC.
Distribution Agreement
(Class A Shares)
Agreement made as of January 22, 1990, as amended and restated
on July 1, 1993 and August 1, 1994, between Prudential High Yield Fund, Inc., a
Maryland Corporation (the Fund) and Prudential Mutual Fund Distributors, Inc., a
Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), as a diversified,
open-end, management investment company and it is in the interest of the Fund to
offer its Class A shares for sale continuously;
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
Class A shares from and after the date hereof in order to promote the growth of
the Fund and facilitate the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the Fund
it is contemplated that the Fund will adopt a plan of distribution pursuant to
Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments by
the Fund to the Distributor with respect to the distribution of Class A shares
of the Fund and the maintenance of Class A 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 Class A shares of the Fund to sell Class A
shares to the public and the Distributor hereby accepts such appointment and
agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Class A shares of the Fund to the Distributor on the terms and
conditions set forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's Class A
shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class A shares from the Fund shall not apply to Class A 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 Class A shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
2.3 Such exclusive rights shall not apply to Class A 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 Class A Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund
the Class A shares needed, but not more than the Class A shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class A
shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers). The
price which the Distributor shall pay for the Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in the
Prospectus.
3.2 The Class A shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its
Class A shares at times when redemption is suspended pursuant to the conditions
in Section 4.3 hereof or at such other times as may be determined by the Board
of Directors. The Fund shall also have the right to suspend the sale of its
Class A shares if a banking moratorium shall have been declared by federal or
New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for Class A 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 Class A 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 Class A 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 Class A Shares by the Fund
4.1 Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class A 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 calendar day subsequent to its having
received the notice of redemption in proper form. The proceeds of any redemption
of Class A shares shall be paid by the Fund to or for the account of the
redeeming shareholder, in each case in accordance with applicable provisions of
the Prospectus.
4.3 Redemption of Class A shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on said Exchange is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class A
shares as provided herein, the Fund agrees to sell its Class A shares so long as
it has Class A shares 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 Class A
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class A shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class A shares for
sales under the securities laws of such states as the Distributor and the Fund
may approve; provided that the Fund shall not be required to amend its Articles
of Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A 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 Class
A shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
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<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to
effect sales of Class A shares of the Fund, but shall not be obligated to sell
any specific number of Class A shares. Sales of the Class A 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 Class A shares, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities dealers and
other financial institutions of its choice for the sale of Class A shares,
provided that the Fund shall approve the forms of such agreements. Within the
United States, the Distributor shall offer and sell Class A shares only to such
selected dealers as are members in good standing of the NASD. Class A 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
The Distributor shall receive and may retain any portion of
any front-end sales charge which is imposed on sales of Class A shares and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of .30
of 1% (including an asset-based sales charge of .05 of 1% and a service fee of
.25 of 1%) per annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of Directors 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
dealer agreements with the Distributor. So long as the Plan (or any amendment
thereto) is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class A
shares of the Fund include, among others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account of,
account executives and indirect and overhead
costs associated with distribution activities,
including central office and branch expenses;
(b) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class A
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(c) sales commissions and trailer commissions
paid to, or on account of, broker-dealers
and financial institutions (other than
Prudential Securities and Prusec) which have
entered into selected dealer agreements with
the Distributor with respect to Class A
shares of the Fund.
(d) amounts paid to, or an account of, account
executives of Prudential Securities, Prusec,
or of other broker-dealers or financial
6
<PAGE>
institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms
through any available medium, including
the cost of printing and mailing Fund
Prospectuses, and periodic financial
reports and sales literature to persons
other than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a) and (b)
of the foregoing sentence include (i) lease expenses, (ii) salaries and benefits
of personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class A shares, 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 preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not limited to the
expense of setting in type any such Registration Statements, Prospectuses,
annual or periodic reports or proxy materials). The Fund shall also bear the
cost of expenses of qualification of the Class A shares for sale, and, if
necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5.4 hereof
and the cost and expense payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification pursuant to
Section 5.4 hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class A shares, so
long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the Securities Act, or under common law or otherwise, arising out of or
based upon any untrue statement of a
7
<PAGE>
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 in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director, or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or directors or, 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 Class A
shares.
10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Directors and any person who controls the Fund, if any,
within the meaning of Section 15 of the Securities Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from the date hereof
and thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class A shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities", when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities of the Class A
shares of the Fund, and (b) by the vote of a majority of the Rule 12b-1
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict
9
<PAGE>
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 Mutual Fund
Distributors, Inc.
By: /s/ Robert F. Gunia
-----------------------
Robert F. Gunia
Executive Vice President
Prudential High Yield Fund, Inc.
By: /s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
President
[mc]cla-hyf.agr
10
Exhibit 6(C)
PRUDENTIAL HIGH YIELD FUND, INC.
Distribution Agreement
(Class B Shares)
Agreement made as of April 8, 1981, as amended on June 26,
1985 and as amended and restated on January 22, 1990, July 1, 1993 and August 1,
1994, between Prudential High Yield Fund, Inc., a Maryland Corporation (the
Fund) and Prudential Securities Incorporated, a Delaware Corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), as a diversified,
open-end, management investment company and it is in the interest of the Fund to
offer its Class B shares for sale continuously;
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
Class B shares from and after the date hereof in order to promote the growth of
the Fund and facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan
pursuant to Rule 12b-1 under the Investment Company Act (the Plan) authorizing
payments by the Fund to the Distributor with respect to the distribution of
Class B shares of the Fund and the maintenance of Class B 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 Class B shares of the Fund to sell Class B
shares to the public and the Distributor hereby accepts such appointment and
agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Class B shares of the Fund to the Distributor on the terms and
conditions set forth below.
1
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's Class B
shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to Class B 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 Class B shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
2.3 Such exclusive rights shall not apply to Class B 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 (the Securities Act), and the Investment
Company Act, as such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund
the Class B shares needed, but not more than the Class B shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class B
shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers). The
price which the Distributor shall pay for the Class B shares so purchased from
the Fund shall be the net asset value, determined as set forth in the
Prospectus.
3.2 The Class B shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its
Class B shares at times when redemption is suspended pursuant to the conditions
in Section 4.3 hereof or at such other times as may be determined by the Board
of Directors. The Fund shall also have the right to suspend the sale of its
Class B shares if a banking moratorium shall have been declared by federal or
New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for Class B 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 Class B 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 Class B 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 Class B Shares by the Fund
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class B 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 Class B
shares shall be paid by the Fund as follows: (a) any applicable contingent
deferred sales charge shall be paid to the Distributor and (b) 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.
4.3 Redemption of Class B shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on said Exchange is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
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 Class B
shares as provided herein, the Fund agrees to sell its Class B shares so long as
it has Class B shares 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 Class B
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class B shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class B shares for
sales under the securities laws of such states as the Distributor and the Fund
may approve; provided that the Fund shall not be required to amend its Articles
of Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B 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 Class
B shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to
effect sales of Class B shares of the Fund, but shall not be obligated to sell
any specific number of Class B shares. Sales of the Class B 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 Class B shares, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities dealers and
other financial institutions of its choice for the sale of Class B shares,
provided that the Fund shall approve the forms of such agreements. Within the
United States, the Distributor shall offer and sell Class B shares only to such
selected dealers as are members in good standing of the NASD. Class B 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
The Distributor shall receive and may retain any contingent
deferred sales charge which is imposed with respect to repurchases and
redemptions of Class B shares as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of .75
of 1% (including an asset-based
5
<PAGE>
sales charge of .50 of 1% and a service fee of .25 of 1%) per annum of the
average daily net assets of the Class B shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of Directors of the commissions
(including trailer 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. So long as the Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class B
shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class B
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class B shares
of the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including
the cost of printing and mailing Fund
Prospectuses, and periodic financial
reports and sales literature to persons
other than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b) and (c)
of the foregoing sentence include (i) lease expenses, (ii) salaries and benefits
of personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class B shares, 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 preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not limited to the
expense of setting in type any such Registration Statements, Prospectuses,
annual or periodic reports or proxy materials). The Fund shall also bear the
cost of expenses of qualification of the Class B shares for sale, and, if
necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5.4 hereof
and the cost and expense payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification pursuant to
Section 5.4 hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class B shares, so
long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling person may incur
under the Securities Act, or under common law or otherwise, arising out of or
based upon any untrue statement of a
7
<PAGE>
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 in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing 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 Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Directors and any person who controls the Fund, if any,
within the meaning of Section 15 of the Securities Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing 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 Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class B shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities," when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities of the Class B
shares of the Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict
9
<PAGE>
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 Securities
Incorporated
By: /s/ Robert F. Gunia
-----------------------
Robert F. Gunia
Senior Vice President
Prudential High Yield Fund, Inc.
By: /s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
President
[mc]clb-hyf.agr
10
Exhibit 6(d)
PRUDENTIAL HIGH YIELD FUND, INC.
Distribution Agreement
(Class C Shares)
Agreement made as of August 1, 1994, between Prudential High
Yield Fund, Inc., a Maryland Corporation (the Fund) and Prudential Securities
Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), as a diversified,
open-end, management investment company and it is in the interest of the Fund to
offer its Class C shares for sale continuously;
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
Class C shares from and after the date hereof in order to promote the growth of
the Fund and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan
pursuant to Rule 12b-1 under the Investment Company Act (the Plan) authorizing
payments by the Fund to the Distributor with respect to the distribution of
Class C shares of the Fund and the maintenance of Class C 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 Class C shares of the Fund to sell Class C
shares to the public and the Distributor hereby accepts such appointment and
agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Class C shares of the Fund to the Distributor on the terms and
conditions set forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's Class C
shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class C shares from the Fund shall not apply to Class C 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 Class C shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
2.3 Such exclusive rights shall not apply to Class C 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 (the Securities Act), and the Investment
Company Act, as such Registration Statement is amended from time to time.
Section 3. Purchase of Class C Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund
the Class C shares needed, but not more than the Class C shares needed (except
for clerical errors in transmission) to fill unconditional orders for Class C
shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers). The
price which the Distributor shall pay for the Class C shares so purchased from
the Fund shall be the net asset value, determined as set forth in the
Prospectus.
3.2 The Class C shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its
Class C shares at times when redemption is suspended pursuant to the conditions
in Section 4.3 hereof or at such other times as may be determined by the Board
of Directors. The Fund shall also have the right to suspend the sale of its
Class C shares if a banking moratorium shall have been declared by federal or
New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for Class C 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 Class C 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 Class C 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 Class C Shares by the Fund
4.1 Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class C 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 Class C
shares shall be paid by the Fund as follows: (a) any applicable contingent
deferred sales charge shall be paid to the Distributor and (b) 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.
4.3 Redemption of Class C shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on said Exchange is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
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 Class C
shares as provided herein, the Fund agrees to sell its Class C shares so long as
it has Class C shares 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 Class C
shares, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its Prospectus and annual and interim reports as the Distributor
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class C shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class C shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class C shares for
sales under the securities laws of such states as the Distributor and the Fund
may approve; provided that the Fund shall not be required to amend its Articles
of Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class C 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 Class
C shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to
effect sales of Class C shares of the Fund, but shall not be obligated to sell
any specific number of Class C shares. Sales of the Class C 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 Class C shares, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales literature
approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities dealers and
other financial institutions of its choice for the sale of Class C shares,
provided that the Fund shall approve the forms of such agreements. Within the
United States, the Distributor shall offer and sell Class C shares only to such
selected dealers as are members in good standing of the NASD. Class C 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
The Distributor shall receive and may retain any contingent
deferred sales charge which is imposed with respect to repurchases and
redemptions of Class C shares as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales
5
<PAGE>
charge of .75 of 1% and a service fee of .25 of 1%) per annum of the average
daily net assets of the Class C shares of the Fund. Amounts payable under the
Plan shall be accrued daily and paid monthly or at such other intervals as
Directors may determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of Directors of the commissions
(including trailer 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. So long as the Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class C
shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class C
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and
financial institutions (other than Prusec) which
have entered into selected dealer agreements with
the Distributor with respect to Class C shares
of the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including
the cost of printing and mailing Fund
Prospectuses, and periodic financial
reports and sales literature to persons
other than current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b) and (c)
of the foregoing sentence include (i) lease expenses, (ii) salaries and benefits
of personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class C shares, 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 preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not limited to the
expense of setting in type any such Registration Statements, Prospectuses,
annual or periodic reports or proxy materials). The Fund shall also bear the
cost of expenses of qualification of the Class C shares for sale, and, if
necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5.4 hereof
and the cost and expense payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification pursuant to
Section 5.4 hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class C shares, so
long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling person may incur
under the Securities Act, or under common law or otherwise, arising out of or
based upon any untrue statement of a
7
<PAGE>
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 in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing 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 Class C shares.
10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Directors and any person who controls the Fund, if any,
within the meaning of Section 15 of the Securities Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing 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 Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class C shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities," when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities of the Class C
shares of the Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict
9
<PAGE>
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 Securities
Incorporated
By: /s/ Robert F. Gunia
-----------------------
Robert F. Gunia
Senior Vice President
Prudential High Yield Fund, Inc.
By: /s/ Lawrence C. McQuade
-----------------------
Lawrence C. McQuade
President
[mc]clc-hyf.agr
10
Exhibit 10
<TABLE>
SULLIVAN & CROMWELL
<S> <C>
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 Broad Street, New York 10004-2498
CABLE ADDRESS: LADYCOURT, NEW YORK __________
FACSIMILE: (212) 558-3588 (125 Broad Street) 250 PARK AVENUE, NEW YORK 10177-0021
(212) 558-3792 (250 Park Avenue) 1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG
February 24, 1995
</TABLE>
Prudential High Yield Fund, Inc.,
One Seaport Plaza,
New York, New York 10292.
Dear Sirs:
You have requested our opinion in connection with
your filing of Post-Effective Amendment No.25 to the Regis-
tration Statement on Form N-1A under the Securities Act of
1933 and your registration in connection therewith of
13,885,394 shares of your Common Stock, $.01 par value (the
"Shares") pursuant to Rule 24e-2 under the Investment Compa-
ny Act of 1940.
As your counsel, we are familiar with your organi-
zation and corporate status and the validity of your Common
Stock.
We advise you that, in our opinion, the Shares,
when duly issued and sold, for not less than the par value
thereof, will be duly authorized and validly issued, fully
paid and nonassessable.
The foregoing opinion is limited to the Federal
laws of the United States and the General Corporation Laws
<PAGE>
Prudential High Yield Fund, Inc. -2-
of the State of Maryland, and we are expressing no opinion
as to the effect by the laws of any other jurisdiction.
We have relied as to certain matters on informa-
tion obtained from public officials, your officers and other
sources believed by us to be responsible.
We consent to the filing of this opinion with the
Securities and Exchange Commission in connection with the
notice referred to above. In giving such consent, we do not
thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
/s/ Sullivan & Cromwell
-----------------------
Sullivan & Cromwell
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 21, 1995, relating to the financial statements and financial highlights
of Prudential High Yield Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
New York, NY
February 23, 1995
Exhibit 15(a)
PRUDENTIAL HIGH YIELD FUND, INC.
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential High Yield Fund, Inc., (the Fund) and
by Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class A shares issued by the
Fund (Class A shares). Under the Plan, the Fund intends to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class A shares.
A majority of the Board of Directors of the Fund, including a majority
of those Directors who are not "interested persons" of the Fund (as defined in
the Investment Company Act) and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the Rule
12b-1 Directors), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption of this Plan will benefit the Fund and
1
<PAGE>
its shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of
the Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), 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. Services provided and activities undertaken to distribute Class A shares
of the Fund are referred to herein as "Distribution Activities."
2
<PAGE>
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 of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee, together with the service fee (described in Section 2
hereof), of .30 of 1% per annum of the average daily net assets of the Class A
shares of the Fund for the performance of Distribution Activities. The Fund
shall calculate and accrue daily amounts payable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
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
3
<PAGE>
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account
of, account executives and indirect and
overhead costs associated with Distribution
Activities, including central office and
branch expenses;
(b) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class A shares of the Fund, including
sales commissions and trailer commissions
paid to, or on account of, agents and
indirect and overhead costs associated with
Distribution Activities;
(c) 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
(d) sales commissions (including trailer commissions) paid to, or
on account of, broker-dealers and financial institutions
(other than Prudential Securities and Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to Class A shares of the Fund.
4
<PAGE>
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund such additional
information as the Board of Directors shall from time to time reasonably
request, including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a
5
<PAGE>
majority of the Board of Directors of the Fund and a majority of the
Rule 12b-1 Directors by votes cast in person at a meeting called for the purpose
of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan. 8.
Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of
6
<PAGE>
effectiveness of the Plan, such agreements or reports, and for at least the
first two years in an easily accessible place.
Dated: January 22, 1990
as amended and restated on
July 1, 1993 and August 1, 1994
[mc]cla-hyf.pln
7
Exhibit 15(b)
PRUDENTIAL HIGH YIELD FUND, INC.
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below
which is designed to conform to the requirements of Rule 12b- 1 under the
Investment Company Act of 1940 (the Investment Company Act) and Article III,
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (NASD) has been adopted by Prudential High Yield Fund,
Inc., (the Fund) and by Prudential Securities Incorporated (Prudential
Securities), the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to
which the Fund will employ the Distributor to distribute Class B shares issued
by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class B shares.
A majority of the Board of Directors of the Fund, including a majority
who are not "interested persons" of the Fund (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class B shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account executives
to provide distribution assistance to their customers who are investors in the
Fund, to defray the costs and expenses associated with the preparation, printing
and distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
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 of Directors may determine. 3. Payment for Distribution
Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee, together with the service fee (described in Section 2
hereof), of .75 of 1% per annum of the average daily net assets of the Class B
shares of the Fund for the performance of Distribution Activities. The Fund
shall calculate and accrue daily amounts payable by the Class B shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
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
3
<PAGE>
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of Distribution Activities including central
office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class B shares of the Fund, including sales
commissions and trailer commissions paid to, or on account of,
agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and other financial
institutions (other than Prusec) which have entered into
selected dealer agreements with the Distributor with respect
to Class B shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund such additional
information
4
<PAGE>
as they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors of the Fund and a majority of
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class B shares of
the Fund.
5
<PAGE>
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: June 26, 1985
as amended and restated on
January 22, 1990, July 1, 1993
and August 1, 1994
[mc]clb-hyf.pln
6
Exhibit 15(c)
PRUDENTIAL HIGH YIELD FUND, INC.
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential High Yield Fund, Inc., (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class C shares issued by the
Fund (Class C shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class C shares.
A majority of the Board of Directors of the Fund including a majority
who are not "interested persons" of the Fund (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
<PAGE>
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class C shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C shares of
the Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified
broker-dealers and financial institutions as the Distributor may select,
including Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund are referred to
herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among
3
<PAGE>
classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of Distribution Activities including central
office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class C shares of the Fund, including sales
commissions and trailer commissions paid to, or on account of,
agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and other financial
institutions (other than Prusec) which have entered into
selected dealer agreements with the Distributor with respect
to Class C shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund such additional
information as they shall from time to time reasonably request, including
4
<PAGE>
information about Distribution Activities undertaken or to be undertaken by the
Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors of the Fund and a majority of
the Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class C shares of
the Fund.
5
<PAGE>
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 C shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors by votes
cast in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
9. Records
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: August 1, 1994
[mc]clc-hyf.pln
6
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000278187
<NAME> PRUDENTIAL HIGH YIELD FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL HIGH YIELD FUND, INC. (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 3,726,781,102
<INVESTMENTS-AT-VALUE> 3,433,150,049
<RECEIVABLES> 95,223,819
<ASSETS-OTHER> 649,622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,529,023,490
<PAYABLE-FOR-SECURITIES> 15,648,583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,756,940
<TOTAL-LIABILITIES> 51,405,523
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,348,172,521
<SHARES-COMMON-STOCK> 453,256,830
<SHARES-COMMON-PRIOR> 450,866,026
<ACCUMULATED-NII-CURRENT> 5,909,907
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (582,833,408)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (293,631,053)
<NET-ASSETS> 3,477,617,967
<DIVIDEND-INCOME> 3,933,771
<INTEREST-INCOME> 394,251,049
<OTHER-INCOME> 0
<EXPENSES-NET> 50,652,849
<NET-INVESTMENT-INCOME> 347,531,971
<REALIZED-GAINS-CURRENT> (17,213,168)
<APPREC-INCREASE-CURRENT> (437,098,902)
<NET-CHANGE-FROM-OPS> (106,780,099)
<EQUALIZATION> 53,408
<DISTRIBUTIONS-OF-INCOME> (357,263,248)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,151,307,757
<NUMBER-OF-SHARES-REDEEMED> (1,294,875,001)
<SHARES-REINVESTED> 169,199,573
<NET-CHANGE-IN-ASSETS> (438,357,610)
<ACCUMULATED-NII-PRIOR> 12,695,879
<ACCUMULATED-GAINS-PRIOR> (562,753,822)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,562,791
<INTEREST-EXPENSE> 187,500
<GROSS-EXPENSE> 50,652,849
<AVERAGE-NET-ASSETS> 165,517,000
<PER-SHARE-NAV-BEGIN> 8.70
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> (1.00)
<PER-SHARE-DIVIDEND> (0.82)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.68
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000278187
<NAME> PRUDENTIAL HIGH YIELD FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL HIGH YIELD FUND, INC. (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 3,726,781,102
<INVESTMENTS-AT-VALUE> 3,433,150,049
<RECEIVABLES> 95,223,819
<ASSETS-OTHER> 649,622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,529,023,490
<PAYABLE-FOR-SECURITIES> 15,648,583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,756,940
<TOTAL-LIABILITIES> 51,405,523
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,348,172,521
<SHARES-COMMON-STOCK> 453,256,830
<SHARES-COMMON-PRIOR> 450,866,026
<ACCUMULATED-NII-CURRENT> 5,909,907
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (582,833,408)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (293,631,053)
<NET-ASSETS> 3,477,617,967
<DIVIDEND-INCOME> 3,933,771
<INTEREST-INCOME> 394,251,049
<OTHER-INCOME> 0
<EXPENSES-NET> 50,652,849
<NET-INVESTMENT-INCOME> 347,531,971
<REALIZED-GAINS-CURRENT> (17,213,168)
<APPREC-INCREASE-CURRENT> (437,098,902)
<NET-CHANGE-FROM-OPS> (106,780,099)
<EQUALIZATION> 53,408
<DISTRIBUTIONS-OF-INCOME> (357,263,248)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,151,307,757
<NUMBER-OF-SHARES-REDEEMED> (1,294,875,001)
<SHARES-REINVESTED> 169,199,573
<NET-CHANGE-IN-ASSETS> (438,357,610)
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<NAME> PRUDENTIAL HIGH YIELD FUND, INC.
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<NAME> PRUDENTIAL HIGH YIELD FUND, INC. (CLASS C)
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