<PAGE>
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[X] Preliminary proxy statement
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PRUDENTIAL-BACHE NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PRUDENTIAL-BACHE NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-II(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<PAGE>
PRELIMINARY COPY
PRUDENTIAL NATIONAL MUNICIPALS FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
-----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------------------
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of Prudential-
Bache National Municipals Fund, Inc., doing business as Prudential National
Municipals Fund (the Fund), will be held at 3:00 P.M. on , 1994, at 199
Water Street, New York, N.Y. 10292, for the following purposes:
1. To elect Directors.
2. To approve an amendment of the Fund's Articles of Incorporation to
permit a conversion feature for Class B Shares.
3. To approve an amended and restated Class A Distribution and Service
Plan.
4. To approve an amended and restated Class B Distribution and Service
Plan.
5. To approve the elimination of the Fund's investment restriction
limiting the Fund's ability to invest in the securities of any issuer in
which officers and Directors of the Fund or officers and directors of its
investment adviser own more than a specified interest.
6. To approve an amendment of the Fund's Articles of Incorporation to
change the name of the Fund to "Prudential National Municipals Fund, Inc."
7. To ratify the selection by the Board of Directors of Price Waterhouse
as independent accountants for the year ending December 31, 1994.
8. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Only shares of Common Stock of the Fund of record at the close of business
on , 1994 are entitled to notice of and to vote at this Meeting or any
adjournment thereof.
S. Jane Rose
Secretary
Dated: March , 1994
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
<PAGE>
PRELIMINARY COPY
PRUDENTIAL NATIONAL MUNICIPALS FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
-----------------------
PROXY STATEMENT
-----------------------
This statement is furnished by the Board of Directors of Prudential-Bache
National Municipals Fund, Inc., doing business as Prudential National
Municipals Fund (the Fund), in connection with its solicitation of proxies for
use at a Special Meeting of Shareholders to be held at 3:00 P.M. on , 1994
at 199 Water Street, New York, New York 10292, the Fund's principal executive
office. The purpose of the Meeting and the matters to be acted upon are set
forth in the accompanying Notice of Special Meeting.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted for the election of Directors and for each of the other
proposals. A Proxy may be revoked at any time prior to the time it is voted by
written notice to the Secretary of the Fund or by attendance at the Meeting. If
sufficient votes to approve one or more of the proposed items are not received,
the persons named as proxies may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares present at the
Meeting or represented by proxy. When voting on a proposed adjournment, the
persons named as proxies will vote for the proposed adjournment all shares that
they are entitled to vote with respect to each item, unless directed to
disapprove the item, in which case such shares will be voted against the
proposed adjournment.
If a Proxy that is properly executed and returned accompanied by instructions
to withhold authority to vote represents a broker "non-vote" (that is, a Proxy
from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote shares
on a particular matter with respect to which the broker or nominee does not
have discretionary power), the shares represented thereby will be considered
not to be present at the Meeting for purposes of determining the existence of a
quorum for the transaction of business and be deemed not cast with respect to
such proposal. If no instructions are received by the broker or nominee from
the shareholder with reference to routine matters, the shares represented
thereby may be considered for purposes of
1
<PAGE>
determining the existence of a quorum for the transaction of business and will
be deemed cast with respect to such proposal. Also, a properly executed and
returned Proxy marked with an abstention will be considered present at the
Meeting for purposes of determining the existence of a quorum for the
transaction of business. However, abstentions and broker "non-votes" do not
constitute a vote "for" or "against" the matter, but have the effect of a
negative vote on the matters which require approval by a requisite percentage
of the outstanding shares.
The close of business on , 1994 has been fixed as the record date for the
determination of shareholders entitled to notice of, and to vote at, the
Meeting. On that date, the Fund had shares of Common Stock
outstanding and entitled to vote, consisting of Class A shares and
Class B shares. Each share will be entitled to one vote at the
Meeting. It is expected that the Notice of Special Meeting, Proxy Statement and
form of Proxy will first be mailed to shareholders on or about March , 1994.
Management does not know of any person or group who owned beneficially 5% or
more of the outstanding shares of either class of Common Stock of the Fund as
of , 1994.
The expense of solicitation will be borne by the Fund and will include
reimbursement of brokerage firms and others for expenses in forwarding proxy
solicitation material to beneficial owners. The solicitation of proxies will be
largely by mail. The Board of Directors of the Fund has authorized management
to retain Shareholder Communications Corporation, a proxy solicitation firm, to
assist in the solicitation of proxies for this Meeting. This cost, including
specified expenses, is not expected to exceed $23,000 and will be borne by the
Fund. In addition, solicitation may include, without cost to the Fund,
telephone, telegraphic or oral communication by regular employees of Prudential
Securities Incorporated (Prudential Securities) and its affiliates.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Meeting, eight Directors will be elected to hold office for a term of
unlimited duration until their successors are elected and qualify. It is the
intention of the persons named in the accompanying form of Proxy to vote for
the election of Delayne Dedrick Gold, Arthur Hauspurg, Harry A. Jacobs, Jr.,
Thomas J. McCormack, Lawrence C. McQuade, Stephen P. Munn, Richard A. Redeker
and Louis A. Weil, III, all of whom, with the exception of Mr. Redeker, are
currently members of the Board of Directors. Each of
2
<PAGE>
the nominees has consented to be named in this Proxy Statement and to serve as
a Director if elected. All of the current members of the Board of Directors
with the exception of Messrs. Munn and Weil have previously been elected by the
shareholders. Mr. Hauspurg has served as a Director since 1980. Ms. Gold and
Messrs. McCormack and McQuade have served as Directors since 1982. Mr. Jacobs
resigned as a Director in March 1988 and was reelected at a board meeting held
on September 9, 1988. Messrs. Weil and Munn have served as Directors since
February 5, 1991 and April 30, 1991, respectively.
The Board of Directors has no reason to believe that any of the nominees
named above will become unavailable for election as a Director, but if that
should occur before the Meeting, proxies will be voted for such persons as the
Board of Directors may recommend.
The Fund's By-laws provide that the Fund will not be required to hold annual
meetings of shareholders if the election of Directors is not required under the
Investment Company Act of 1940, as amended (the Investment Company Act). It is
the present intention of the Board of Directors of the Fund not to hold annual
meetings of shareholders unless such shareholder action is required.
INFORMATION REGARDING DIRECTORS
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING POSITION OWNED AT
THE PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND , 1994
------------------------------------- --------- -----------------
<S> <C> <C>
Delayne Dedrick Gold (55), Marketing and Manage- Director [-0-]
ment Consultant; Director of Prudential Adjust-
able Rate Securities Fund, Inc., Prudential Eq-
uity Fund, Inc., Prudential Global Fund, Inc.,
Prudential GNMA Fund, Prudential Government
Plus Fund, Prudential Growth Opportunity Fund,
Prudential High Yield Fund, Prudential
IncomeVertible (R) Fund Inc., Prudential
MoneyMart Assets, Prudential National
Municipals Fund, Prudential Pacific Growth
Fund, Inc., Prudential Short-Term Global Income
Fund, Inc., Prudential Special Money Market
Fund, Prudential Structured Maturity Fund, Pru-
dential Tax-Free Money Fund and Prudential
Utility Fund; Trustee of The BlackRock Govern-
ment Income Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Pru-
dential California Municipal Fund, Prudential
Government Securities Trust, Prudential Munici-
pal Series Fund and Prudential U.S. Government
Fund.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING POSITION OWNED AT
THE PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND , 1994
------------------------------------- --------- -----------------
<S> <C> <C>
Arthur Hauspurg (68), Trustee and former Presi- Director [-0-]
dent, Chief Executive Officer and Chairman of
the Board of Consolidated Edison Company of
New York, Inc.; Director of COMSAT Corp., Pru-
dential Growth Opportunity Fund, Prudential
High Yield Fund, Prudential National
Municipals Fund and Prudential Tax-Free Money
Fund; Trustee of Prudential Government Securi-
ties Trust.
*Harry A. Jacobs, Jr. (72), Senior Director Director [-0-]
(since January 1986) of Prudential Securities;
formerly 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 Ex-
ecutive Officer of Bache Group Inc. (1977 -
1982); Director of the Center for National
Policy, Prudential Adjustable Rate Securities
Fund, Inc., Prudential Equity Fund, Inc., Pru-
dential Global Fund, Inc., Prudential GNMA
Fund, Prudential Government Plus Fund, Pruden-
tial Growth Opportunity Fund, Prudential High
Yield Fund, Prudential IncomeVertible(R) Fund,
Inc., Prudential MoneyMart Assets, Prudential
National Municipals Fund, Prudential Pacific
Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential Special
Money Market Fund, Prudential Structured Matu-
rity Fund, Prudential Tax-Free Money Fund,
Prudential Utility Fund, The First Australia
Fund, Inc., The First Australia Prime Income
Fund, Inc., The Global Government Plus Fund,
Inc. and The Global Yield Fund, Inc.; Trustee
of the Trudeau Institute, The BlackRock Gov-
ernment Income Trust, Command Money Fund, Com-
mand Government Fund, Command Tax-Free Fund,
Prudential California Municipal Fund, Pruden-
tial Municipal Series Fund and Prudential U.S.
Government Fund.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING POSITION OWNED AT
THE PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND , 1994
------------------------------------- ------------- -----------------
<S> <C> <C>
Thomas J. McCormack (62), Chairman, Chief Ex- Director [-0-]
ecutive Officer and Editorial Director
(since 1987) and President (1970 - 1987) of
St. Martin's Press, Inc.; Director of Mac-
millan Publishers Limited (London) and Pan
Books Limited (London), Prudential Growth
Opportunity Fund, Prudential High Yield
Fund, Prudential National Municipals Fund
and Prudential Tax-Free Money Fund; Trustee
of Prudential Government Securities Trust.
*Lawrence C. McQuade (66), Vice Chairman of President and [-0-]
PMF (since 1988); Managing Director, Invest- Director
ment Banking, Prudential Securities (1988 -
1991); Director of Quixote Corporation
(since February 1992) and BUNZL, PLC (since
June 1991); formerly Director of Crazy Eddie
Inc. (1987 - 1990) and Kaiser Tech, Ltd. and
Kaiser Aluminum and Chemical Corp. (March
1987 - November 1988); formerly Executive
Vice President and Director of WR Grace &
Company; President and Director of Pruden-
tial Adjustable Rate Securities Fund, Inc.,
Prudential Equity Fund, Inc., Prudential
Global Fund, Inc., Prudential Global Genesis
Fund, Prudential Global Natural Resources
Fund, Prudential GNMA Fund, Prudential Gov-
ernment Plus Fund, Prudential Growth Fund,
Inc., Prudential Growth Opportunity Fund,
Prudential High Yield Fund, Prudential
IncomeVertible(R) Fund, Inc., Prudential
Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund,
Inc., Prudential MoneyMart Assets, Pruden-
tial Multi-Sector Fund, Inc., Prudential Na-
tional Municipals Fund, Prudential Pacific
Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential Special
Money Market Fund, Prudential Structured Ma-
turity Fund, Prudential Tax-Free Money Fund,
Prudential Utility Fund, The Global Govern-
ment Plus Fund, Inc., The Global Yield Fund,
Inc. and The High Yield Income Fund, Inc.;
President and Trustee of The BlackRock
Government Income Trust, Command Govern-
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING POSITION OWNED AT
THE PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND , 1994
------------------------------------- --------- ------------
<S> <C> <C>
ment Fund, Command Money Fund, Command Tax-Free Fund,
Prudential California Municipal Fund, Prudential Eq-
uity Income Fund, Prudential FlexiFund, Prudential
Government Securities Trust, Prudential Municipal
Bond Fund, Prudential Municipal Series Fund, Pruden-
tial U.S. Government Fund and The Target Portfolio
Trust.
Stephen P. Munn (51), Chairman (since January 1994), Director [351]
Director and President (since 1988) and Chief Execu-
tive Officer (1988 - December 1993) of Carlisle Com-
panies Incorporated; formerly President of Carrier
Transicold (a division of United Technologies Carri-
er) (1985 - 1988); Trustee of Prudential Government
Securities Trust and Director of Prudential Growth
Opportunity Fund, Prudential High Yield Fund, Pruden-
tial National Municipals Fund and Prudential Tax-Free
Money Fund.
*Richard A. Redeker (50), President, Chief Executive None [-0-]
Officer and Director (since October 1993), PMF; Exec-
utive Vice President, Director and Member of the Op-
erating Committee (since October 1993), Prudential
Securities; Director (since October 1993) of Pruden-
tial Securities Group, Inc. (PSG); formerly Senior
Executive Vice President and Director of Kemper Fi-
nancial Services, Inc. (September 1978 - September
1993); Director of Global Utility Fund, Inc., Pruden-
tial Adjustable Rate Securities Fund, Inc., Pruden-
tial Equity Fund, Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Prudential Global
Natural Resources Fund, Prudential GNMA Fund, Pruden-
tial Government Plus Fund, Prudential Growth Fund,
Inc., Prudential IncomeVertible (R) Fund, Inc., Pru-
dential Institutional Liquidity Portfolio, Inc., Pru-
dential Intermediate Global Income Fund, Inc., Pru-
dential MoneyMart Assets, Prudential Multi-Sector
Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Inc., Pru-
dential Special Money Market Fund, Prudential Struc-
tured Maturity Fund, Prudential Utility Fund, The
Global Yield Fund, Inc., The Global Government Plus
Fund, Inc., and
The High Yield Income Fund, Inc.; Trustee of The
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING POSITION OWNED AT
THE PAST FIVE YEARS AND DIRECTORSHIPS WITH FUND , 1994
------------------------------------- --------- ------------
<S> <C> <C>
BlackRock Government Income Trust, Command Government
Fund, Command Money Fund, Command Tax-Free Fund, Pru-
dential California Municipal Fund, Prudential Equity
Income Fund, Prudential FlexiFund, Prudential Munici-
pal Bond Fund, Prudential Municipal Series Fund, Pru-
dential U.S. Government Fund and The Target Portfolio
Trust.
Louis A. Weil, III (52), Publisher and Chief Executive Director [352]
Officer, Phoenix Newspapers, Inc. (since August
1991); Director of Central Newspapers, Inc. (since
September 1991); prior thereto, Publisher of Time
Magazine (May 1989 - March 1991); formerly President,
Publisher & CEO of The Detroit News (February 1986 -
August 1989); formerly member of the Advisory Board,
Chase Manhattan Bank-Westchester; Trustee of Pruden-
tial Equity Income Fund, Prudential FlexiFund, Pru-
dential Government Securities Trust and Prudential
Municipal Bond Fund; Director of Prudential Global
Genesis Fund, Prudential Global Natural Resources
Fund, Prudential Growth Opportunity Fund, Prudential
High Yield Fund, Prudential Multi-Sector Fund, Inc.,
Prudential National Municipals Fund, Prudential Tax-
Free Money Fund and The Global Government Plus Fund,
Inc.
</TABLE>
- -----------
* Indicates "interested" Director, as defined in the Investment Company Act by
reason of his affiliation with PMF or Prudential Securities.
The Directors and officers of the Fund as a group owned beneficially [701]
shares of the Fund at , 1994, representing less than 1% of the outstanding
shares of the Fund.
The Fund pays annual compensation of $7,500, plus travel and incidental
expenses to each of the five Directors not affiliated with PMF or Prudential
Securities. The Chairman of the Audit Committee receives an additional $200 per
year. The Directors have the option to receive the 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 which accrues 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 exemptive
order of the Securities and Exchange Commission (SEC), at the rate of return of
the Fund. Payment of the interest so accrued is also deferred
7
<PAGE>
and accruals become payable at the option of the Director. The Fund's
obligation to make payments of deferred Directors' fees, together with interest
thereon, is a general obligation of the Fund. During the fiscal year ended
December 31, 1993, the Fund paid Directors' fees of $37,700 and travel and
incidental expenses of approximately $800.
There were four regular meetings of the Fund's Board of Directors held during
the fiscal year ended December 31, 1993. The Board of Directors presently has
an Audit Committee, the members of which are Ms. Gold and Messrs. Hauspurg,
McCormack, Munn, and Weil, the Fund's non-interested Directors. The Audit
Committee met twice during the fiscal year ended December 31, 1993. The Audit
Committee makes recommendations to the full Board with respect to the
engagement of independent accountants and reviews with the independent
accountants the plan and results of the audit engagement and matters having a
material effect upon the plan and results of the audit engagement and matters
having a material effect upon the Fund's financial operations. The Board also
has a Nominating Committee, comprised of the Fund's non-interested Directors,
which selects and proposes candidates for election to the Board of Directors.
The Nominating Committee met once during the fiscal year ended December 31,
1993. The Nominating Committee does not consider nominees recommended by
shareholders to fill vacancies on the Board.
During the fiscal year ended December 31, 1993, Mr. McCormack attended fewer
than 75% of the aggregate of the total number of meetings of the Board of
Directors and any committees thereof of which such Director was a member.
The executive officers of the Fund, other than as shown above, are: David W.
Drasnin, Vice President, having held office since July 19, 1985; Robert F.
Gunia, Vice President, and Susan C. Cote, Treasurer, both having held office
since April 30, 1987; and S. Jane Rose, Secretary, having held office since
October 18, 1984; Ronald Amblard, Assistant Secretary, having held office since
September 9, 1988. Mr. Drasnin is 57 years old and is currently Vice President
and Branch Manager of Prudential Securities. Mr. Gunia is 47 years old and is
currently Chief Administrative Officer (since July 1990), Director, Executive
Vice President, Treasurer and Chief Financial Officer (since June 1987) of PMF,
Senior Vice President of Prudential Securities. He is also Vice President and
Director (since May 1989) of The Asia Pacific Fund, Inc. Ms. Cote is 39 years
old and is Senior Vice President of PMF (since January 1989)
8
<PAGE>
and a Senior Vice President of Prudential Securities (since January 1992).
Prior thereto, she was Vice President (January 1986 - December 1991) of
Prudential Securities. Ms. Rose is 48 years old and is Senior Vice President
(since January 1991) and Senior Counsel of PMF and a Senior Vice President and
Senior Counsel of Prudential Securities (since July 1992). Prior thereto, she
was First Vice President (June 1987 - December 1990) of PMF and Vice President
and Associate General Counsel of Prudential Securities. Mr. Amblard is 35 years
old and is currently First Vice President (since January 1994) and Associate
General Counsel (since January 1992) of PMF and Vice President and Associate
General Counsel (since January 1992) of Prudential Securities. Prior thereto,
he was Assistant General Counsel (August 1988 - December 1991), Associate Vice
President (January 1989 - December 1990) and Vice President (January 1991 -
December 1993) of PMF. The executive officers of the Fund are elected annually
by the Board of Directors.
REQUIRED VOTE
Directors must be elected by a vote of a plurality of the shares present at
the meeting in person or by proxy and entitled to vote thereupon, provided that
a quorum is present.
MANAGEMENT OF THE FUND
THE MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, serves as the Fund's Manager under a
management agreement dated as of May 2, 1988 (the Management Agreement).
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 such
contract or interested persons of such parties (as defined in the Investment
Company Act) on May 3, 1993 and was approved by shareholders on April 28, 1988.
TERMS OF THE MANAGEMENT AGREEMENT
Pursuant to 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, is responsible for managing or providing for the management of the
investment of the Fund's assets. In this regard, PMF provides supervision of
the Fund's investments, furnishes a continuous investment program for the
Fund's portfolio and places purchase and sale orders for portfolio securities
9
<PAGE>
of the Fund and other investments. The Prudential Insurance Company (PIC), a
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential), provides such services pursuant to a subadvisory agreement (the
Subadvisory Agreement) with PMF. PMF also administers the Fund's corporate
affairs, subject to the supervision of the Fund's Board of Directors, and, in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by the Fund's Transfer and Dividend Disbursing Agent and Custodian.
PMF has authorized any of its directors, officers and employees who have been
elected as Directors or officers of the Fund to serve in the capacities in
which they have been elected. All services furnished by PMF under the
Management Agreement may be furnished by any such directors, officers or
employees of PMF. In connection with its administration of the corporate
affairs of the Fund, PMF bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and PMF,
except the fees and expenses of Directors not affiliated with PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with
administering 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 PIC pursuant to the Subadvisory
Agreement.
The Fund pays PMF for the services performed and the facilities furnished by
it 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 $250 million, .45 of
1% of the next $500 million, .425 of 1% of the next $250 million, .40 of 1% of
the next $250 million and .375 of 1% of the Fund's average daily net assets in
excess of $1.5 billion. This fee is computed daily and paid monthly. For the
fiscal year ended December 31, 1993, PMF received a management fee of
$4,087,672.
The Management Agreement provides that, if 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 shares of the Fund are then qualified for offer and
sale, the compensation due PMF will be reduced by the amount
10
<PAGE>
of such excess, or, if such reduction exceeds the compensation payable to PMF,
PMF will pay the Fund the amount of such reduction which exceeds the amount of
such compensation. Any such reductions or payments are subject to readjustment
during the year. No such reductions or payments were required during the fiscal
year ended December 31, 1993. The Fund believes the most restrictive of such
annual limitations 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.
Except as indicated above, the Fund is responsible under the Management
Agreement for the payment of its expenses, including (a) the fees payable of
PMF, (b) the fees and expenses of Directors who are not affiliated with PMF or
the investment adviser, (c) the fees and certain expenses of the Fund's
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records of the Fund and of pricing Fund shares, (d) the charges and
expenses of the Fund's legal counsel and independent accountants, (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
association of which the Fund may be a member, (h) the cost of any share
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC and
registering the Fund as a broker or dealer 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 Board of Directors' meetings and of preparing, printing and
mailing prospectuses and reports to 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 to the Fund for
any error of judgment by PMF or for any loss suffered by the Fund in connection
with the matters to which the Management Agreement relates except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or willful misfeasance, bad faith, gross negligence
or reckless disregard of duty. The Management Agreement also provides that it
will terminate automatically if assigned and that it may be terminated without
penalty by the Board of Directors of the Fund, by vote of a majority of the
Fund's outstanding voting securities (as defined in the Investment Company Act)
or by the Manager, upon not more than 60 days' nor less than 30 days' written
notice.
11
<PAGE>
INFORMATION ABOUT PMF
PMF, a subsidiary of Prudential Securities and an indirect, wholly-owned
subsidiary of Prudential, was organized in May 1987 under the laws of the State
of Delaware. Prudential's address is Prudential Plaza, Newark, New Jersey
07102. PMF acts as manager for the following investment companies:
Open-End Management Investment Companies: Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential Adjustable Rate
Securities Fund, Inc., Prudential California Municipal Fund,
Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Global Fund, Inc., Prudential-Bache
Global Genesis Fund, Inc. (d/b/a Prudential Global Genesis Fund),
Prudential-Bache Global Natural Resources Fund, Inc., (d/b/a/
Prudential Global Natural Resources Fund), Prudential-Bache GNMA
Fund, Inc. (d/b/a Prudential GNMA Fund), Prudential-Bache Government
Plus Fund, Inc. (d/b/a Prudential Government Plus Fund), Prudential
Government Securities Trust, Prudential Growth Fund, Inc.,
Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a Prudential
Growth Opportunity Fund), Prudential-Bache High Yield Fund, Inc.
(d/b/a Prudential High Yield Fund), Prudential Income Vertible (R)
Fund, Inc., Prudential-Bache MoneyMart Assets Fund, Inc. (d/b/a
Prudential MoneyMart Assets), Prudential Multi-Sector Fund, Inc.,
Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential-Bache National Municipals Fund, Inc. (d/b/a Prudential
National Municipals Fund), Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Inc., Prudential-Bache
Special Money Market Fund, Inc. (d/b/a Prudential Special Money
Market Fund). Prudential-Bache Structured Maturity Fund, Inc. (d/b/a
Prudential Structured Maturity Fund), Prudential-Bache Tax-Free Money
Fund, Inc. (d/b/a Prudential Tax-Free Money Fund), Prudential U.S.
Government Fund, Prudential-Bache Utility Fund, Inc. (d/b/a
Prudential Utility Fund), Prudential Institutional Liquidity
Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc.,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. and The
BlackRock Government Income Trust.
Closed-End Management Investment Companies: The Global Government
Plus Fund, Inc., The Global Yield Fund, Inc. and The High Yield
Income Fund, Inc.
The consolidated statement of financial condition of PMF and subsidiaries as
of December 31, 1993 is set forth as Exhibit A to this Proxy Statement.
12
<PAGE>
Certain information regarding the directors and principal executive officers
of PMF is set forth below. Except as otherwise indicated, the address of each
person is One Seaport Plaza, New York, New York 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<C> <S> <C>
Maureen Behning-Doyle.... Executive Vice Executive Vice
President President, PMF;
Senior Vice
President, Prudential
Securities
John D. Brookmeyer, Jr. . Director Senior Vice President,
Two Gateway Center Prudential
Newark, NJ 07102
Susan C. Cote............ Senior Vice Senior Vice President,
President PMF; Senior Vice
President, Prudential
Securities
Fred A. Fiandaca......... Executive Vice Executive Vice
Raritan Plaza One President, President,
Edison, NJ 08847 Chief Operating Chief Operating Officer
Officer and and Director, PMF;
Director Chairman, Chief
Operating Officer and
Director, Prudential
Mutual Fund Services,
Inc.
Stephen P. Fisher........ Senior Vice Senior Vice President,
President PMF; Senior Vice
President, Prudential
Securities
Frank W. Giordano........ Executive Vice Executive Vice
President, General President, General
Counsel and Counsel and
Secretary Secretary, PMF;
Senior Vice
President, Prudential
Securities
Robert F. Gunia.......... Executive Vice Executive Vice
President, Chief President, Chief
Financial and Financial and
Administrative Administrative
Officer, Treasurer Officer, Treasurer
and Director and Director, PMF;
Senior Vice
President, Prudential
Securities
Eugene B. Heimberg....... Director Senior Vice President,
Prudential Plaza Prudential
Newark, NJ 07102
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
Leland B. Paton.................... Director Executive Vice
President
and Director,
Prudential
Securities;
Director, PSG
Richard A. Redeker................. President, Chief President, Chief
Executive Officer Executive Officer
and Director and Director, PMF;
Executive Vice
President, Director
and Member of the
Operating Committee,
Prudential
Securities;
Director, PSG
S. Jane Rose....................... Senior Vice Senior Vice President,
President, Senior Senior Counsel and
Counsel and Assistant Secretary,
Assistant PMF; Senior Vice
Secretary President and Senior
Counsel, Prudential
Securities
Donald G. Southwell................ Director Senior Vice President,
213 Washington Street Prudential;
Newark, NJ 07102 Director, PSG
</TABLE>
THE SUBADVISER
Investment advisory services are provided to the Fund by PMF through its
affiliate, The Prudential Investment Corporation (PIC or the Subadviser).
Prudential Plaza, Newark, New Jersey 07102, under a Subadvisory Agreement. The
Subadvisory Agreement was approved by shareholders on April 28, 1988 and was
last approved by the Board of Directors of the Fund, including a majority of
the Directors who are not parties to such contract or interested persons of
such parties (as defined in the Investment Company Act), on May 3, 1993.
TERMS OF THE SUBADVISORY AGREEMENT
Pursuant to the Subadvisory Agreement, PIC, subject to the supervision of PMF
and the Board of Directors and in conformity with the stated policies of the
Fund, manages the investment operations of the Fund and the composition of the
Fund's portfolio, including the purchase, retention and disposition of
securities and other investments. PIC is reimbursed by PMF for reasonable costs
and expenses incurred by it in furnishing such services. The fees paid by the
Fund to PMF under the Management Agreement with PMF are not affected by this
arrangement. PIC keeps certain books and records required to be maintained
pursuant to the Investment Company Act. The investment advisory services of PIC
to the Fund are not exclusive under the terms of the Subadvisory Agreement and
PIC is free to, and does, render investment advisory services to others.
14
<PAGE>
PIC has authorized any of its directors, officers and employees who may be
elected as Directors or officers of the Fund to serve in the capacities in
which they have been elected. Services furnished by PIC under the Subadvisory
Agreement may be furnished by any such directors, officers or employees of PIC.
The Subadvisory Agreement provides that PIC shall not be liable for any error
of judgment or for any loss suffered by the Fund or PMF in connection with the
matters to which the Subadvisory Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on PIC's part in the
performance of its duties or from its reckless disregard of duty. The
Subadvisory Agreement provides that it shall terminate automatically if
assigned or upon termination of the Management Agreement and that it may be
terminated without penalty by either party upon not more than 60 days' nor less
than 30 days' written notice.
INFORMATION ABOUT PIC. PIC was organized in June 1984 under the laws of the
State of New Jersey. The business and other connections of PIC's directors and
executive officers are as set forth below. Except as otherwise indicated, the
address of each person is Prudential Plaza, Newark, New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
Martin A. Berkowitz.............. Senior Vice President, Senior Vice
Chief Financial President, Chief
and Compliance Officer Financial and
Compliance Officer,
PIC; Vice
President,
Prudential
William M. Bethke................ Senior Vice President Senior Vice
Two Gateway Center President,
Newark, NJ 07102 Prudential
John D. Brookmeyer, Jr. ......... Senior Vice President Senior Vice
Two Gateway Center President,
Newark, NJ 07102 Prudential; Senior
Vice President, PIC
Eugene B. Heimberg............... President and Director Senior Vice
President,
Prudential
Garnett L. Keith, Jr. ........... Director Vice Chairman and
Director,
Prudential
William P. Link.................. Executive Vice President Executive Vice
Four Gateway Center President,
Newark, NJ 07102 Prudential
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
Robert E. Riley................. Executive Vice Executive Vice
President President,
800 Boylston Avenue Prudential;
Boston, MA 02199 Director, PSG
James W. Stevens................ Executive Vice President Executive Vice
Four Gateway Center President,
Newark, NJ 07102 Prudential;
Director, PSG
Robert C. Winters............... Director Chairman of the Board
and Chief Executive
Officer,
Prudential;
Chairman of the
Board, PSG
Claude J. Zinngrabe, Jr. ....... Executive Vice President Vice President,
Prudential
</TABLE>
THE DISTRIBUTORS
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, One Seaport Plaza, New York, New York 10292, acts
as the distributor of the Class B shares of the Fund.
Under separate Distribution and Service Plans (the Class A Plan and the Class
B 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 and Class B shares,
respectively.
The Plans were last approved by 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 or Class
B Plan or in any agreement related to either Plan (the Rule 12b-1 Directors) on
May 3, 1993. The Class A Plan was approved by the Class A shareholders on
December 19, 1990. The Class B Plan was approved by shareholders of the Fund
(the Class B shareholders) on January 11, 1990.
The Plans are proposed to be amended as set forth in Proposal Nos. 3 and 4
below.
Class A Plan. Under the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net
16
<PAGE>
assets of the Class A shares may be used 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. PMFD has advised the Fund that
distribution-related expenses of the Fund will not exceed .10 of 1% of the
average daily net assets of the Class A shares for the fiscal year ending
December 31, 1994.
For the fiscal year ended December 31, 1993 PMFD received payments of $11,786
under the Class A Plan representing .10 of 1% of the average daily net assets
of the Class A shares as reimbursement of expenses related to the distribution
of Class A shares. This amount was primarily expended on account servicing fees
to Prudential Securities and Pruco Securities Corporation, an affiliated
broker-dealer (Prusec), for payment to financial advisers and other
salespersons who sell Class A shares. For the fiscal year ended December 31,
1993, PMFD also received $251,600 in initial sales charges.
Class B Plan. Under the Class B Plan, the Fund reimburses Prudential
Securities for its distribution-related expenses with respect to Class B shares
at an annual rate of up to .50 of 1% of the average daily net assets of the
Class B shares. The Class B Plan also provides for the payment of a service fee
to Prudential Securities at a rate not to exceed .25 of 1% of the average daily
net assets of Class B shares. The aggregate distribution fee for Class B shares
(asset-based sales charge plus service fee) will not exceed .50 of 1% of the
average daily net assets under the Class B Plan.
For the fiscal year ended December 31, 1993, Prudential Securities received
$4,274,596 from the Fund under the Class B Plan and spent approximately
$4,599,900 in distributing the Fund's Class B shares. It is estimated that of
the latter amount approximately 0.1% ($5,000) was spent on printing and mailing
of prospectuses to other than current shareholders; 36.5% ($1,677,400) on
compensation of Prusec, for commissions to its financial advisers and other
expenses, including an allocation of overhead and other branch office
distribution-related expenses, incurred by it for distribution of Fund shares;
14.0% ($645,000) in interest and/or carrying charges; 49.4% ($2,272,500) on the
aggregate of (i) payments of commissions to financial advisers (29.1% or
$1,336,900) and (ii) an allocation of overhead and other branch office
distribution-related expenses (20.3% or $935,600). 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,
17
<PAGE>
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. Under the current Class B Plan, the amount of distribution expenses
reimbursable by Class B shares of the Fund is reduced by the amount of such
contingent deferred sales charges. For the fiscal year ended December 31, 1993,
Prudential Securities received approximately $510,600, in contingent deferred
sales charges. As of December 31, 1993, the aggregate amounts of unreimbursed
distribution expenses for the Fund's Class B shares were approximately
$18,588,600.
The Class A and Class B 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
Class A and Class B 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. Neither Plan
may be amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class,
and all material amendments are required to be approved by the Board of
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 either the Class A Plan or the Class B Plan if it
is terminated or not continued. In the event of termination or noncontinuation
of the Class B Plan, the Board of Directors may consider the appropriateness of
having the Fund reimburse Prudential Securities for the outstanding carry
forward amounts plus interest thereon.
Pursuant to each Plan, the Board of Directors reviews at least quarterly a
written report of the distribution expenses incurred on behalf of the Class A
and Class B shares of the Fund by PMFD and Prudential Securities respectively.
The report includes an itemization of the distribution expenses and the
purposes of such expenditures. In addition, as long as the Plans remain in
effect, the selection and nomination of Rule 12b-1 Directors shall be committed
to the Rule 12b-1 Directors.
18
<PAGE>
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. Each Distribution
Agreement was last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on May 3, 1993.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities and
futures contracts for the Fund, the selection of brokers and dealers and
futures commission merchants to effect the transactions and the negotiation of
brokerage commissions, if any. For purposes of this section, the term "Manager"
includes the "Subadviser." Fixed income securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. The Fund will not deal
with Prudential Securities (or any affiliate) in any transaction in which
Prudential Securities acts as principal. Purchases and sales of securities on a
securities exchange, while infrequent, and purchases and sales of futures on a
commodities exchange or board of trade are effected through brokers who charge
a negotiated commission for their services. On a foreign securities exchange,
commissions may be fixed. Orders may be directed to any broker including, to
the extent and in the manner permitted by applicable law, Prudential
Securities.
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. Commission rates are established pursuant to
negotiations with the broker or futures commission merchant 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 or futures commission merchants, other than Prudential
Securities (or any affiliate), 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. 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 (as defined in the Investment
19
<PAGE>
Company Act), except in accordance with rules of the SEC. This limitation, in
the opinion of the Fund, will not significantly affect the Fund's ability to
pursue its present investment objective. However, in the future in other
circumstances, the Fund may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.
Subject to the above considerations, Prudential Securities (or any affiliate)
may act as a broker or futures commission merchant for the Fund. In order for
Prudential Securities or any affiliate to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by Prudential
Securities or any affiliate must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow Prudential Securities or any affiliate to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the Board of Directors
of the Fund, including a majority of the Rule 12b-1 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) under
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
affiliate 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 year ended December 31, 1993.
20
<PAGE>
APPROVAL OF A PROPOSAL TO AMEND
THE FUND'S ARTICLES OF INCORPORATION TO PERMIT THE
IMPLEMENTATION OF A CONVERSION FEATURE
(FOR CONSIDERATION BY CLASS A AND
CLASS B SHAREHOLDERS VOTING JOINTLY)
(PROPOSAL NO. 2)
The Board of Directors is recommending that shareholders approve an amendment
to the Fund's Articles of Incorporation to permit the implementation of a
conversion feature for Class B shares. The conversion feature is authorized
pursuant to an exemptive order of the SEC (the SEC Order) and would provide for
the automatic conversion of Class B shares to Class A shares at relative net
asset value approximately seven years after purchase. Class A shares are
subject to a lower annual distribution and service fee than Class B shares and
conversions would occur without the imposition of any additional sales charge.
A description of the conversion feature is set forth in greater detail below.
Amendment of the Articles of Incorporation requires approval by a majority of
the Fund's outstanding shares.
THE CLASSES OF SHARES
The Fund currently offers two classes of shares, designated as Class A and
Class B shares pursuant to the Alternative Purchase Plan, in reliance upon the
SEC Order. Class A shares are currently offered with an initial sales charge of
up to 4.5% of the offering price and are subject to an annual distribution and
service fee of up to .30 of 1% of the average daily net assets of the Class A
shares pursuant to a Rule 12b-1 plan. This fee is currently charged at a rate
of .10 of 1% of the average daily net assets of the Class A shares and PMFD has
agreed to so limit its fee under the Class A Plan for the fiscal year ending
December 31, 1994. Class B shares are currently offered without an initial
sales charge but are subject to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lesser of the amount invested or the
redemption proceeds) on certain redemptions generally made within six years of
purchase and to an annual distribution and service fee pursuant to a Rule 12b-1
plan of up to .50 of 1% of the average daily net assets of the Class B shares.
In accordance with the SEC Order, the Board of Directors may, among other
things, authorize the creation of additional classes of shares from time to
time. The Board of Directors has approved the offering of a new class of
shares, to be designated Class C shares, which will be offered simultaneously
21
<PAGE>
with the offering of Class B shares with the proposed conversion feature. Class
C shares will be offered without either an initial or deferred sales charge but
will be subject to an annual distribution and service fee not to exceed 1% of
the average daily net assets of the Class C shares. If the proposed conversion
feature for Class B shares is not approved, Class C shares will not be offered.
THE PROPOSED CONVERSION FEATURE
On May 3, 1993, the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act), approved an amendment to the Fund's Articles of
Incorporation to permit the implementation of a conversion feature for the
Fund's Class B shares. A copy of the proposed amendment to the Fund's Articles
of Incorporation is attached hereto as Exhibit B.
If this proposal is approved, it is currently contemplated that conversions
of Class B shares to Class A shares will occur on a quarterly basis
approximately seven years from purchase. The first conversion is currently
anticipated to occur in or about January 1995. Conversions will be effected
automatically at relative net asset value without the imposition of any
additional sales charge. Class B shareholders will benefit from the conversion
feature because they will thereafter be subject to the lower annual
distribution and service fee applicable to Class A shares.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, it is currently anticipated that 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 a shareholder's
account (ii) multiplied by the total number of Class B shares then held in such
shareholder's account. Each time any Eligible Shares in a shareholder's account
convert to Class A shares, all shares or amounts representing Class B shares
then in such 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 a shareholder's account on any conversion date are the result of
multiple purchases at different net asset values per share, the number of
22
<PAGE>
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 or 47.62% multiplied by 200 shares or 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.
If the net asset value per share of Class A is higher than that of Class B at
the time of conversion (which may be the case because of the higher
distribution and service fee applicable to Class B shares), shareholders will
receive fewer Class A shares than Class B shares converted, although the
aggregate dollar value will be the same.
For purposes of calculating the applicable holding period for conversions,
all payments for purchases of Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange, or a series of exchanges, on the last day of the month in
which the original payment for purchase 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 a period
of one year will not convert to Class A 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. As of the date of the first conversion
(which, as noted above, is currently anticipated to occur in or about January
1995) all amounts representing Class B shares then outstanding beyond the
expiration of the applicable conversion period will automatically convert to
Class A shares, together with all shares or amounts representing Class B shares
acquired through the automatic reinvestment of dividends and distributions then
held in the shareholder's account.
Under current law, no gain or loss will be recognized by a shareholder for
U.S. income tax purposes as a result of a conversion of Class B shares into
Class A shares.
23
<PAGE>
If approved by shareholders, the conversion feature will be subject to the
continuing availability of opinions of counsel (i) that the dividends and other
distributions paid on Class A and Class B shares will not constitute
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and (ii) that the conversion of shares does not constitute a taxable event.
REQUIRED VOTE
The proposed amendment to the Fund's Articles of Incorporation to implement
the conversion feature requires the affirmative vote of a majority of the
Fund's outstanding shares. In the event shareholders of the Fund do not approve
the proposed amendment, the conversion feature will not be implemented for the
Fund and Class B shares of the Fund will continue to be subject, possibly
indefinitely, to their higher annual distribution and service fee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
APPROVAL OF
AMENDED AND RESTATED CLASS A DISTRIBUTION
AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS A AND
CLASS B SHAREHOLDERS VOTING SEPARATELY)
(PROPOSAL NO. 3)
On May 3, 1993, the Fund's Board of Directors approved an amended and
restated Class A Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act and an amended and restated Distribution Agreement with
PMFD for Class A shares of the Fund (the Proposed Class A Plan and the Proposed
Class A Distribution Agreement, respectively) and recommends submission of the
Proposed Class A Plan to the Fund's Class A shareholders for approval or
disapproval at this Special Meeting of Shareholders. As contemplated by the SEC
Order (previously defined under Proposal No. 2 above), the Proposed Class A
Plan is also being submitted for approval by Class B shareholders because,
subject to approval of Proposal No. 2, Class B shares will automatically
convert to Class A shares approximately seven years after purchase. The
Proposed Class A Distribution Agreement does not require and is not being
submitted for shareholder approval.
24
<PAGE>
The purpose of the Proposed Class A Plan is to compensate PMFD, the
distributor of the Fund's Class A shares, for providing distribution assistance
to broker/dealers, including Prudential Securities and Prusec, affiliated
broker/dealers, and other qualified broker/dealers, if any, whose customers
invest in Class A shares of the Fund and to defray the costs and expenses,
including the payment of account servicing fees, of the services provided and
activities undertaken to distribute Class A shares (Distribution Activities).
The Board of Directors previously adopted a plan of distribution for the
Fund's Class A shares pursuant to Rule 12b-1 under the Investment Company Act
which was approved by shareholders on December 19, 1990 and last approved by
the Board of Directors on May 3, 1993 (the Existing Class A Plan). Shareholders
of the Fund's Class A and Class B shares are being asked to approve amendments
to the Existing Class A Plan that change it from a reimbursement type plan to a
compensation type plan. The amendments do not change the maximum annual fee
that may be paid to PMFD under the Existing Class A Plan, although the
possibility exists that expenses incurred by PMFD and for which it is entitled
to be reimbursed under the Existing Class A Plan may be less than the fee PMFD
will receive under the Proposed Class A Plan. The amendments are being proposed
to facilitate administration and accounting. The Board of Directors believes
that the Proposed Class A Plan is in the best interest of the Fund and is
reasonably likely to benefit the Fund's Class A shareholders. A copy of the
Proposed Class A Plan is attached hereto as Exhibit C.
THE EXISTING CLASS A PLAN
Under the Existing Class A Plan, the Fund reimburses PMFD for expenses
incurred for Distribution Activities at an annual rate of up to .30 of 1% of
the average daily net assets of the Class A shares (up to .25 of 1% of which
may constitute a service fee for the servicing and maintenance of shareholder
accounts). Article III, Section 26 of the NASD Rules of Fair Practice (the NASD
Rules) places an annual limit of .25 of 1% on fees that may be imposed for the
provision of personal service and/or the maintenance of shareholder accounts
(service fees) and an annual limit of .75 of 1% on asset-based sales charges
(as defined in the NASD Rules). Subject to these limits, the Fund may impose
any combination of service fees and asset-based sales charges under both the
Existing Class A Plan and the Proposed Class A Plan; provided that the total
fees do not exceed .30 of 1% per annum of the average daily net assets of the
Class A shares.
The Existing Class A Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by
25
<PAGE>
a majority of the holders of the Class A shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
Directors, including a majority of the Rule 12b-1 Directors, cast in person at
a meeting called for the purpose of voting on the Plan. So long as the Existing
Class A Plan is in effect, the selection and nomination of the Rule 12b-1
Directors will be committed to the discretion of the Rule 12b-1 Directors.
The Existing Class A Plan may be terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Directors or by the
vote of a majority of the outstanding Class A shares of the Fund (as defined in
the Investment Company Act) on written notice to any other party to such plan
and will automatically terminate in the event of its assignment (as defined in
the Investment Company Act). For a more detailed description of the Existing
Class A Plan, see "Management of the Fund--The Distributors--Class A Plan."
THE PROPOSED CLASS A PLAN
The Proposed Class A Plan amends the Existing Class A Plan in one material
respect. Under the Existing Class A Plan, the Fund reimburses PMFD for expenses
actually incurred for Distribution Activities up to a maximum of .30 of 1% per
annum of the average daily net assets of the Class A shares. The Proposed Class
A Plan authorizes the Fund to pay PMFD the same maximum annual fee as
compensation for its Distribution Activities regardless of the expenses
incurred by PMFD for Distribution Activities. The Distributor may, however, as
it currently does, voluntarily agree to limit its fee to an amount less than
the maximum annual fee. In contrast to the Existing Class A Plan, the amounts
payable by the Fund under the Proposed Class A Plan would not be directly
related to the expenses actually incurred by PMFD for its Distribution
Activities. Consequently, if PMFD's expenses for Distribution Activities are
less than the distribution and service fees it receives under the Proposed
Class A Plan, it will retain its full fees and realize a profit.
Since inception of the Existing Class A Plan, the reimbursable expenses
incurred thereunder by PMFD have generally equalled or exceeded the amount
reimbursed by the Fund. For each of the fiscal years ended December 31, 1991,
1992 and 1993, PMFD received payments of $2,828, $5,401 and $11,786,
respectively, under the Existing Class A Plan representing .10 of 1% of the
average daily net assets of the Class A shares as reimbursement of expenses
incurred for Distribution Activities. PMFD agreed to limit its fees under the
Existing Class A Plan to .10 of 1% for the fiscal years ended
26
<PAGE>
December 31, 1991, 1992 and 1993 even though its direct and indirect
reimbursable distribution expenses exceeded such amount. PMFD believes that it
would have similarly limited its fee had the Proposed Class A Plan been in
effect during the past three fiscal years, although it could have assessed the
maximum annual fee of .30 of 1%. Regardless of which plan will be in effect,
the Distributor has voluntarily agreed to limit its fees for Distribution
Activities to no more than .10 of 1% of the average daily net assets of the
Class A shares for the fiscal year ending December 31, 1994. Other expenses
incurred by PMFD for Distribution Activities have been, and will continue to
be, paid from the proceeds of initial sales charges.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class A Plan, over a reimbursement type plan, such as the Existing
Class A Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order
to qualify for reimbursement. Although the Proposed Class A Plan will continue
to require quarterly reporting to the Board of Directors of the amounts accrued
and paid under the Plan and of the expenses actually borne by the Distributor,
there will be no need to match specific expenses to reimbursements as under the
Existing Class A Plan. Thus, the accounting for the Proposed Class A Plan would
be simplified and the timing of when expenditures are to be made by the
Distributor would not be an issue. These considerations, combined with the
reasonable likelihood, although there is no assurance, that the per annum
payment rate under the Proposed Class A Plan will not exceed the expenses
incurred by PMFD for Distribution Activities, suggest that the costs and
efforts associated with a reimbursement plan are unwarranted.
In considering whether to approve the Proposed Class A Plan, the Directors
reviewed, among other things, the nature and scope of the services to be
provided by PMFD, the purchase options available to investors under the
Alternative Purchase Plan, the amount of expenditures under the Existing Class
A Plan, the relationship of such expenditures to the overall cost structure of
the Fund, and comparative data with respect to distribution arrangements
adopted by other investment companies. Based upon such review, the Directors,
including a majority of the Rule 12b-1 Directors, determined that there is a
reasonable likelihood that the Proposed Class A Plan will benefit the Fund and
its Class A shareholders.
If approved by shareholders, the Proposed Class A Plan will continue in
effect from year to year, provided such continuance is approved at least
27
<PAGE>
annually by vote of a majority of the Board of Directors, including a majority
of the Rule 12b-1 Directors.
REQUIRED VOTE
If Proposal No. 2 is approved by shareholders, the Proposed Class A Plan will
require the approval of a majority of the Fund's outstanding Class A shares and
Class B shares (as defined in the Investment Company Act) voting separately. If
Proposal No. 2 is not approved by shareholders, the Proposed Class A Plan will
only require the approval of a majority of the Fund's outstanding Class A
shares. Under the Investment Company Act, a majority of a class' outstanding
shares is defined as the lesser of (i) 67% of a class' outstanding shares
represented at a meeting at which more than 50% of the outstanding shares of
the class are present in person or represented by proxy, or (ii) more than 50%
of a class' outstanding shares. If the Proposed Class A Plan is not approved as
described above, the Existing Class A Plan will continue in its present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3.
APPROVAL OF
AMENDED AND RESTATED CLASS B DISTRIBUTION
AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS B SHAREHOLDERS ONLY)
(PROPOSAL NO. 4)
On May 3, 1993, the Fund's Board of Directors approved an amended and
restated Class B Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act and an amended and restated Class B Distribution
Agreement with Prudential Securities for Class B shares of the Fund (the
Proposed Class B Plan and the Proposed Class B Distribution Agreement,
respectively) and recommends submission of the Proposed Class B Plan to the
Fund's Class B shareholders for approval or disapproval at this Special Meeting
of Shareholders. The Proposed Class B Distribution Agreement does not require
and is not being submitted for shareholder approval.
The purpose of the Proposed Class B Plan is to compensate Prudential
Securities, the distributor of the Fund's Class B shares, for providing
distribution assistance to broker/dealers, including Prusec, an affiliated
broker/dealer, and other qualified broker/dealers, if any, whose customers
28
<PAGE>
invest in Class B shares of the Fund and to defray the costs and expenses,
including the payment of account servicing fees, of the services provided and
activities undertaken to distribute Class B shares (Distribution Activities).
The Board of Directors previously adopted a plan of distribution for the
Fund's Class B shares pursuant to Rule 12b-1 under the Investment Company Act
which was approved by shareholders on January 11, 1990 and last approved by the
Board of Directors on May 3, 1993 (the Existing Class B Plan). Shareholders of
the Fund's Class B shares are being asked to approve amendments to the Existing
Class B Plan that change it from a reimbursement type plan to a compensation
type plan. The amendments do not change the maximum annual fee that may be paid
to Prudential Securities under the Existing Class B Plan, although the
possibility exists that expenses incurred by Prudential Securities and for
which it is entitled to be reimbursed under the Existing Class B Plan may be
less than the fee Prudential Securities will receive under the Proposed Class B
Plan. The amendments are being proposed to facilitate administration and
accounting. The Board of Directors believes that the Proposed Class B Plan is
in the best interest of the Fund and is reasonably likely to benefit the Fund's
Class B shareholders. A copy of the Proposed Class B Plan is attached hereto as
Exhibit D.
THE EXISTING CLASS B PLAN
Under the Existing Class B Plan, the Fund reimburses Prudential Securities
for expenses incurred for Distribution Activities at an annual rate of up to
.50 of 1% of the average daily net assets of the Class B shares (up to .25 of
1% of which may constitute a service fee for the servicing and maintenance of
shareholder accounts). Amounts reimbursable under the Plan that are not paid
because they exceed the maximum fee payable thereunder are carried forward and
may be recovered in future years by Prudential Securities from asset-based
sales charges imposed on Class B shares, to the extent such charges do not
exceed .50 of 1% per annum of the average daily net assets of the Class B
shares, and from contingent deferred sales charges received from certain
redeeming shareholders, subject to the limitations of Article III, Section 26
of the NASD Rules. The NASD Rules place an annual limit of .25 of 1% on fees
that may be imposed for the provision of personal service and/or the
maintenance of shareholder accounts (service fees) and an annual limit of .75
of 1% on asset-based sales charges (as defined in the NASD Rules). Subject to
these limits, the Fund may impose any combination of service fees and asset-
based sales charges under both the Existing Class B Plan and the Proposed Class
B Plan; provided that the total fees do not exceed .50 of 1% per annum of the
average daily net assets of the Class B shares.
29
<PAGE>
Pursuant to the NASD Rules, the aggregate deferred sales charges and asset-
based sales charges on Class B shares of the Fund may not, subject to certain
exclusions, exceed 6.25% of total gross sales of Class B shares.
The Existing Class B Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class B shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
Directors, including a majority of the Rule 12b-1 Directors, cast in person at
a meeting called for the purpose of voting on the plan. So long as the Existing
Class B Plan is in effect, the selection and nomination of Rule 12b-1 Directors
will be committed to the discretion of the Rule 12b-1 Directors.
The Existing Class B Plan may be terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Directors or by the
vote of a majority of the outstanding Class B shares of the Fund (as defined in
the Investment Company Act) on written notice to any other party to such plan
and will automatically terminate in the event of its assignment (as defined in
the Investment Company Act). For a more detailed description of the Existing
Class B Plan, see "Management of the Fund--The Distributors--Class B Plan."
THE PROPOSED CLASS B PLAN
The Proposed Class B Plan amends the Existing Class B Plan in one material
respect. Under the Existing Class B Plan, the Fund reimburses Prudential
Securities for expenses actually incurred for Distribution Activities up to a
maximum of .50 of 1% per annum of the average daily net assets of the Class B
shares. The Proposed Class B Plan authorizes the Fund to pay Prudential
Securities the same maximum annual fee as compensation for its Distribution
Activities regardless of the expenses incurred by Prudential Securities for
Distribution Activities. In contrast to the Existing Class B Plan, the amounts
payable by the Fund under the Proposed Class B Plan would not be directly
related to the expenses actually incurred by Prudential Securities for its
Distribution Activities. Consequently, if Prudential Securities' expenses are
less than its distribution and service fees, it will retain its full fees and
realize a profit. However, if Prudential Securities' expenses exceed the
distribution and service fees received under the Proposed Class B Plan, it will
no longer carry forward such amounts for reimbursement in future years.
Since inception of the Existing Class B Plan, the cumulative reimbursable
expenses incurred thereunder by Prudential Securities have exceeded the
30
<PAGE>
amounts reimbursed by the Fund. As of December 31, 1993, the aggregate amount
of distribution expenses incurred and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges was approximately
$18,588,600.
For the fiscal years ended December 31, 1991, 1992 and 1993, Prudential
Securities received $4,311,242, $4,149,149 and $4,274,596, respectively, from
the Fund under the Existing Class B Plan, representing .50% of the average
daily net assets of the Class B shares, and spent approximately $5,609,600,
$4,807,400 and $4,599,900, respectively, for Distribution Activities. Since the
maximum annual fee under the Existing Class B Plan is the same as under the
Proposed Class B Plan, Prudential Securities would have received the same
annual fee under the Proposed Class B Plan as it did under the Existing Class B
Plan for the fiscal years ended December 31, 1991, 1992 and 1993.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class B Plan, over a reimbursement type plan, such as the Existing
Class B Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order
to qualify for reimbursement. Although the Proposed Class B Plan will continue
to require quarterly reporting to the Board of Directors of the amounts accrued
and paid under the Plan and of the expenses actually borne by the Distributor,
there will be no need to match specific expenses to reimbursements and no
carrying forward of such amounts, as under the Existing Class B Plan. Thus, the
accounting for the Proposed Class B Plan would be simplified and the timing of
when expenditures are to be made by the Distributor would not be an issue.
Currently, because the Existing Class B Plan is a reimbursement plan, the
Distributor retains an independent expert to perform a study of the methodology
for determining and substantiating which of its expenses should properly be
allocated to the Fund's Class B shares for reimbursement, the cost of which is
borne by the Fund and other funds for which Prudential Securities serves as
Distributor. These considerations, combined with the fact that the cumulative
expenses incurred by Prudential Securities for Distribution Activities have
exceeded the amounts reimbursed by the Fund under the Existing Class B Plan,
suggest that the costs and efforts associated with a reimbursement plan are
unwarranted.
In considering whether to approve the Proposed Class B Plan, the Directors
reviewed, among other things, the nature and scope of the services to be
provided by Prudential Securities, the purchase options available to investors
under the Alternative Purchase Plan, the amount of expenditures
31
<PAGE>
under the Existing Class B Plan, the relationship of such expenditures to the
overall cost structure of the Fund, and comparative data with respect to
distribution arrangements adopted by other investment companies. Based upon
such review, the Directors, including a majority of the Rule 12b-1 Directors,
determined that there is a reasonable likelihood that the Proposed Class B Plan
will benefit the Fund and its Class B shareholders.
If approved by Class B shareholders, the Proposed Class B Plan will continue
in effect from year to year, provided such continuance is approved at least
annually by vote of a majority of the Board of Director, including a majority
of the Rule 12b-1 Directors.
REQUIRED VOTE
The Proposed Class B Plan requires the approval of a majority of the Fund's
outstanding Class B shares as defined in the Investment Company Act and as
described under Proposal No. 3 above. If the Proposed Class B Plan is not
approved, the Existing Class B Plan will continued in its present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.
APPROVAL OF ELIMINATION OF THE FUND'S INVESTMENT
RESTRICTION LIMITING INVESTMENT IN THE SECURITIES OF ANY ISSUER IN WHICH THE
OFFICERS AND DIRECTORS OF THE FUND OR ITS INVESTMENT ADVISER OWN MORE THAN A
SPECIFIED INTEREST
(PROPOSAL NO. 5)
On May 3, 1993, the Board of Directors considered and recommends for
shareholder approval elimination of the Fund's Investment Restriction No. 13,
which provides that the Fund may not:
Purchase or retain securities of any issuer if officers or directors of
the Fund or officers or directors of the Adviser responsible for
investment decisions concerning the Fund beneficially owning individually
more than 1/2 of 1% of the securities of such issuer together beneficially
own more than 5% of the securities of such issuer.
The Manager has advised the Board of Directors that Investment Restriction
No. 13 was initially adopted to comply with a restriction imposed in connection
with the sale of the Fund's shares in Ohio. If the proposal is
32
<PAGE>
approved, the Fund would continue to comply with the restriction as a non-
fundamental operating policy so long as the Fund sells its shares in Ohio.
However, if Ohio were to eliminate the requirement or the Fund stopped offering
its shares for sale in Ohio, the Board of Directors could eliminate the
operating policy without the necessity of shareholder approval. The Fund does
not currently intend to stop offering its shares in Ohio, nor is the Fund or
the Fund's Manager aware of any proposal to change the Ohio law.
The Board of Directors believes that adoption of Proposal No. 5 is in the
best interests of the Fund and its shareholders.
REQUIRED VOTE
Amendment of the Fund's investment restrictions to delete Investment
Restriction No. 13 requires the approval of a majority of the Fund's
outstanding voting securities. Under the Investment Company Act, a majority of
the Fund's outstanding voting securities is defined as the lesser of (i) 67% of
the Fund's outstanding shares represented at a meeting at which more than 50%
of the Fund's outstanding shares are present in person or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares. If the proposed change
in investment policy is not approved, the current limitations would remain a
fundamental policy which could not be changed without the approval of a
majority of the outstanding voting securities of the Fund.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 5.
APPROVAL OF AN AMENDMENT OF THE FUND'S ARTICLES OF INCORPORATION TO CHANGE THE
NAME OF THE FUND
(PROPOSAL NO. 6)
The Board of Directors proposes that the Fund's name be changed from
Prudential-Bache National Municipals Fund, Inc. to Prudential National
Municipals Fund, Inc. and that the Articles of Incorporation of the Fund be
amended to effect the name change. The Fund is currently doing business under
the name Prudential National Municipals Fund.
The Board of Directors considered the proposed name change from "Prudential-
Bache" to "Prudential" in connection with the change in the name of Prudential-
Bache Securities Inc. to Prudential Securities Incorporated (Prudential
Securities), Distributor of the Fund's Class B
33
<PAGE>
shares. Management of the Fund expressed its opinion that the proposed name,
"Prudential National Municipals Fund, Inc.," more accurately reflects the
Fund's affiliation with PMF, Prudential Securities and The Prudential Insurance
Company of America, their parent company.
The Board of Directors believes that adoption of Proposal No. 6 is in the
best interest of the Fund and its shareholders.
REQUIRED VOTE
The name change must be approved by the holders of a majority of the Fund's
shares of common stock in accordance with the Fund's Articles of Incorporation.
The name change will be effected as soon as is practicable after shareholder
approval. If this proposal is not approved, the Board of Directors will
consider whether it is appropriate for the Fund to continue to do business
under the name Prudential National Municipals Fund.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 6.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 7)
The Board of Directors of the Fund, including Directors who are not
interested persons of the Fund, has selected Price Waterhouse as independent
accountants for the Fund for the fiscal year ending December 31, 1994. The
ratification of the selection of independent public accountants is to be voted
upon at the Meeting and it is intended that the persons named in the
accompanying Proxy will vote for Price Waterhouse. No representative of Price
Waterhouse is expected to be present at the Meeting of Shareholders.
The policy of the Board of Directors regarding engaging independent
accountants' services is that management may engage the Fund's principal
independent public accountants to perform any service(s) normally provided by
independent accounting firms, provided that such service(s) meet(s) any and all
of the independence requirements of the American Institute of Certified Public
Accountants and the SEC. In accordance with this policy, the Audit Committee
reviews and approves all services provided by the independent public
accountants prior to their being rendered. The Board of Directors of the Fund
receives a report from its Audit Committee relating to all services after they
have been performed by the Fund's independent accountants.
34
<PAGE>
REQUIRED VOTE
The affirmative vote of a majority of the shares present, in person or by
proxy, at the Meeting is required for ratification.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 7.
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of shareholders arise,
including any question as to an adjournment of the Meeting, the persons named
in the enclosed Proxy will vote thereon according to their best judgment in the
interests of the Fund.
SHAREHOLDER PROPOSAL
The Fund is not required to hold annual meetings of shareholders and the
Board of Directors currently does not intend to hold such meetings unless
shareholder action is required in accordance with the Investment Company Act or
the Fund's By-Laws. A shareholder proposal intended to be presented at any
meeting of shareholders of the Fund hereinafter called must be received by the
Fund a reasonable time before the Board of Directors' solicitation relating
thereto is made in order to be included in the Fund's Proxy statement and form
of Proxy relating to that meeting. The mere submission of a proposal by a
shareholder does not guarantee that such proposal will be included in the proxy
statement because certain rules under the Federal securities laws must be
complied with before inclusion of the proposal is required.
S. Jane Rose
Secretary
Dated: March , 1994
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
35
<PAGE>
EXHIBIT A
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
Cash and short-term investments................................... $ 42,667,507
Loan to affiliate................................................. 85,000,000
Management, administration and other fees receivable.............. 17,897,292
Transfer agency and fiduciary fees receivable..................... 3,744,874
Furniture, equipment and leasehold improvements, net.............. 10,495,702
Other assets...................................................... 4,676,430
------------
$164,481,805
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to affiliates................................................ $ 48,794,366
Accounts payable and accrued expenses............................ 11,208,209
Income taxes payable to affiliate--net........................... 2,937,828
------------
62,940,403
------------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value (1,000
shares authorized, 850 shares outstanding)..................... 850
Class B common stock, $1 par value (1,000
shares authorized, 150 shares outstanding)..................... 150
Additional paid-in capital....................................... 24,999,000
Retained earnings................................................ 76,541,402
------------
101,541,402
------------
$164,481,805
============
</TABLE>
See notes to consolidated statement of financial condition.
A-1
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prudential Mutual Fund Management, Inc. ("PMF") and subsidiaries (the
"Company"), an indirect wholly-owned subsidiary of The Prudential Insurance
Company of America (the "Prudential"), were created to operate as the manager,
distributor and/or transfer agent for investment companies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statement includes the accounts of PMF and its
wholly-owned subsidiaries, Prudential Mutual Fund Services, Inc. ("PMFS") and
Prudential Mutual Fund Distributors, Inc. ("PMFD"). All intercompany profits,
transactions and balances have been eliminated.
INCOME TAXES
The Company is a member of a group of affiliated companies which join in
filing a consolidated Federal income tax return. Pursuant to a tax allocation
agreement, tax expense is determined for individual profitable companies on a
separate return basis. Profit members pay this amount to an affiliated company
which in turn apportions the payment among the loss members in proportion to
their losses. In January 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
adoption of SFAS 109 did not have a material effect on the Company's financial
position.
2.SHORT-TERM INVESTMENTS
At December 31, 1993, the Company had invested $35,411,571 in several money
market funds which PMF manages.
A-2
<PAGE>
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<S> <C>
Furniture.......................................................... $ 6,481,799
Equipment.......................................................... 9,181,984
Leasehold improvements............................................. 3,407,213
-----------
19,070,996
Less accumulated depreciation and amortization..................... 8,575,294
-----------
$10,495,702
===========
</TABLE>
4.RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company participates in a variety of
financial and administrative transactions with affiliates.
The loan to affiliate bears interest at 3.45 percent at December 31, 1993 and
is due on demand.
The caption "Due to affiliates" includes $18,241,795 at December 31, 1993 for
reimbursement of employee compensation and benefits, and other administrative
and operating expenses. This amount is noninterest-bearing and payable on
demand.
The Company has entered into subadvisory agreements with The Prudential
Investment Corporation ("PIC"), a wholly-owned subsidiary of Prudential. Under
these agreements, PIC furnishes investment advisory services to substantially
all the funds for which the Company acts as Manager. At December 31, 1993 there
were unpaid fees due to PIC of $23,926,277, included in the caption "Due to
affiliates."
Distribution expenses include commissions and account servicing fees paid to,
or on account of, financial advisors of Prudential Securities Incorporated
("Prudential Securities") and Pruco Securities Corporation ("PruSec"),
affiliated broker-dealers and indirect wholly-owned subsidiaries of Prudential,
advertising expenses, the cost of printing and mailing prospectuses to
potential investors, and indirect and overhead costs of Prudential Securities
and PruSec, including lease, utility, communications and sales promotion
expenses. At December 31, 1993 there were unpaid distribution expenses of
approximately $6,626,000, included in the caption "Due to affiliates."
A-3
<PAGE>
5.CAPITAL
PMFD is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1), which
requires the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. At December 31, 1993, PMFD had net capital of $2,308,981, which was
$1,859,405 in excess of its required net capital of $449,576. PMFD had a ratio
of aggregate indebtedness to net capital of 2.9 to 1.
6.COMMITMENTS
The Company leases office space under operating leases expiring in 2003. The
leases are subject to escalation based upon certain costs incurred by the
lessor. Future minimum rentals, as of December 31, 1993, under the leases, are
as follows:
<TABLE>
<CAPTION>
YEAR MINIMUM RENTAL
---- --------------
<S> <C>
1994...................................................... $ 2,738,000
1995...................................................... 2,865,000
1996...................................................... 3,375,000
1997...................................................... 3,385,000
1998...................................................... 3,230,000
Thereafter................................................. 13,800,000
-----------
$29,393,000
===========
</TABLE>
7.PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has two defined benefit pension plans (the "Plans") sponsored by
the Prudential and Prudential Securities. The Plans cover substantially all of
the Company's employees. The funding policy is to contribute annually the
amount necessary to satisfy the Internal Revenue Service funding standards. In
addition, the Company has two defined benefit plans for key executives, the
Supplemental Retirement Plan (SRP) for which estimated pension costs are
currently accrued but not funded.
The Company provides certain health care and life insurance benefits for
eligible retired employees. Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS 106 changed the
practice of accounting for postretirement benefits on a cash basis to an
accrual basis, whereby employers record the projected future cost of providing
such postretirement benefits as employees render services
A-4
<PAGE>
instead of when benefits are paid. This new accounting method has no effect on
the Company's cash outlays for these retirement benefits. The adoption of SFAS
106 did not materially impact the Company's financial position.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"), which is effective for fiscal years beginning after
December 15, 1993. Although several benefits are fully insured which result in
no SFAS 112 obligation, the Company currently has an obligation and resulting
expense under SFAS 112 for medical benefits provided under long-term
disability. The Company will adopt SFAS 112 on January 1, 1994. Management
believes that implementation will have no material effect on the Company's
financial position.
8.CONTINGENCY
On October 12, 1993, a purported class action lawsuit was instituted against
PMF, et al and certain current and former directors of a fund managed by PMF.
The plaintiffs seek damages in an unspecified amount for excessive management
and distribution fees they allege were incurred by them. Although the outcome
of this litigation cannot be predicted at this time, the defendants believe
they have meritorious defenses to the claims asserted in the complaint and
intend to defend this action vigorously. In any case, management does not
believe that the outcome of this action is likely to have a material adverse
effect on the Company's financial position.
* * * * * *
A-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Prudential Mutual Fund
Management, Inc.:
We have audited the accompanying consolidated statement of financial
condition of Prudential Mutual Fund Management, Inc. and subsidiaries as of
December 31, 1993. This consolidated financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this consolidated financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated statement
of financial condition. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated statement of financial condition presents
fairly, in all material respects, the financial position of Prudential Mutual
Fund Management, Inc. and subsidiaries at December 31, 1993 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE
NEW YORK, NEW YORK
January 26, 1994
A-6
<PAGE>
EXHIBIT B
FORM OF AMENDMENT TO ARTICLES OF INCORPORATION
Article IV, Section 1 of the Fund's Articles of Incorporation are proposed to
be amended and restated 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 750,000,000 shares of the par value of $.01
per share and of the aggregate par value of $7,500,000 to be divided initially
into three classes, consisting of 250,000,000 shares of Class A Common Stock,
250,000,000 shares of Class B Common Stock and 250,000,000 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 appropriateley 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 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 not be subject to either an initial or deferred sales charge but
shall be subject to 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 of each Class, at the time
of the calculation of the net asset value of such Class B Common
B-1
<PAGE>
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 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 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.
B-2
<PAGE>
EXHIBIT C
PRUDENTIAL NATIONAL MUNICIPALS FUND
DISTRIBUTION AND SERVICE PLAN
(Class A Shares)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential National Municipals Fund (the Fund)
and by Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement (the 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 Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of front-end sales charges with respect to the sale of 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 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 serving and maintenance of
shareholder accounts.
C-1
<PAGE>
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. 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 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.
C-2
<PAGE>
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. 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 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.
C-3
<PAGE>
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors 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
expenses to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class 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 effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated:
C-4
<PAGE>
EXHIBIT D
PRUDENTIAL NATIONAL MUNICIPALS FUND
DISTRIBUTION AND SERVICE PLAN
(Class B Shares)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential National Municipals Fund (the Fund)
and by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement (the 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 Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of contingent deferred sales charges imposed with respect to certain
repurchases and redemptions of 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 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.
D-1
<PAGE>
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. 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 .50 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 Board of
Directors. The allocation of distribution expenses among classes will be
subject to the review of the Board of Directors or Trustees.
D-2
<PAGE>
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 cost
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 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.
D-3
<PAGE>
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.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class 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:
D-4
<PAGE>
1--Election of Directors
- -------------------------------------
[X] [X] [X]
Approve Withhold Withhold
All All Those Listed
Nominees Nominees on Back
- -------------------------------------
TO WITHHOLD AUTHORITY FOR ANY
INDIVIDUAL NOMINEE, PLEASE WRITE
NAME ON BACK OF FORM.
Delayne Dedrick Gold
Arthur Hauspurg
Harry A. Jacobs, Jr.
Thomas J. McCormack
Lawrence C. McQuade
Stephen P. Munn
Richard A. Redeker
Louis A. Weil, III
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
For Against Abstain
2. To approve an amendment of the Fund's Articles of 2 [X] [X] [X]
Incorporation to permit a conversion feature for
Class B Shares.
3. To approve an amended and restated Class A 3 [X] [X] [X]
Distribution and Service Plan.
4. NOT APPLICABLE TO CLASS A SHAREHOLDERS. 4 [X] [X] [X]
5. To approve the elimination of the Fund's 5 [X] [X] [X]
investment restriction limiting the
Fund's ability to invest in the securities
of any issuer in which officers and
Directors of the Fund or officers and
directors of its investment adviser own
more than a specified interest.
6. To approve an amendment of the Fund's Articles 6 [X] [X] [X]
of Incorporation to change the name of the
Fund to "Prudential National Municipals Fund,
Inc."
7. To ratify the selection by the Board of 7 [X] [X] [X]
Directors of Price Waterhouse as
independent accountants for the year ending
December 31, 1994.
8. To transact such other business as may properly 8 [X] [X] [X]
come before the Meeting or any adjournments
thereof.
Only shares of common stock of the
Fund of record at the close of
business on ,1994 are entitled
to notice of and to vote at the Meeting
or any adjournment thereof.
_________________________________ PLEASE SIGN EXACTLY AS NAME APPEARS
Signature Date AT LEFT. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN
_________________________________ SIGNING AS ATTORNEY, EXECUTOR,
Signature (Joint Ownership) ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON
<PAGE>
[_]
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY.
PROXY (CLASS A) THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
PRUDENTIAL NATIONAL
MUNICIPALS FUND The undersigned hereby appoints Susan C. Cote,
ONE SEAPORT PLAZA S. Jane Rose and Ronald Amblard as Proxies,
NEW YORK, NEW YORK 10292 each with the power of substitution, and
hereby authorizes each of them to represent and to
vote, as designated below, all the shares of Class
A common stock of Prudential National Municipals
Fund held of record by the undersigned on ,
1994 at the Special Meeting of Shareholders to be
held on , 1994, or any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S).
IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL THE PROPOSALS
LISTED BELOW.
Your Account No.: Your voting shares are:
<PAGE>
1--Election of Directors
- -------------------------------------
[X] [X] [X]
Approve Withhold Withhold
All All Those Listed
Nominees Nominees on Back
- -------------------------------------
TO WITHHOLD AUTHORITY FOR ANY
INDIVIDUAL NOMINEE, PLEASE WRITE
NAME ON BACK OF FORM.
Delayne Dedrick Gold
Arthur Hauspurg
Harry A. Jacobs, Jr.
Thomas J. McCormack
Lawrence C. McQuade
Stephen P. Munn
Richard A. Redeker
Louis A. Weil, III
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
For Against Abstain
2. To approve an amendment of the Fund's Articles of 2 [X] [X] [X]
Incorporation to permit a conversion feature for
Class B Shares.
3. To approve an amended and restated Class A 3 [X] [X] [X]
Distribution and Service Plan.
4. To approve an amended and restated Class B 4 [X] [X] [X]
Distribution and Service Plan.
5. To approve the elimination of the Fund's 5 [X] [X] [X]
investment restriction limiting the
Fund's ability to invest in the securities
of any issuer in which officers and
Directors of the Fund or officers and
directors of its investment adviser own
more than a specified interest.
6. To approve an amendment of the Fund's Articles 6 [X] [X] [X]
of Incorporation to change the name of the
Fund to "Prudential National Municipals Fund,
Inc."
7. To ratify the selection by the Board of 7 [X] [X] [X]
Directors of Price Waterhouse as
independent accountants for the year ending
December 31, 1994.
8. To transact such other business as may properly 8 [X] [X] [X]
come before the Meeting or any adjournments
thereof.
Only shares of common stock of the
Fund of record at the close of
business on ,1994 are entitled
to notice of and to vote at the Meeting
or any adjournment thereof.
_________________________________ PLEASE SIGN EXACTLY AS NAME APPEARS
Signature Date AT LEFT. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN
_________________________________ SIGNING AS ATTORNEY, EXECUTOR,
Signature (Joint Ownership) ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON
<PAGE>
[_]
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY.
PROXY (CLASS B) THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
PRUDENTIAL NATIONAL
MUNICIPALS FUND The undersigned hereby appoints Susan C. Cote,
ONE SEAPORT PLAZA S. Jane Rose and Ronald Amblard as Proxies,
NEW YORK, NEW YORK 10292 each with the power of substitution, and
hereby authorizes each of them to represent and to
vote, as designated below, all the shares of Class
A common stock of Prudential National Municipals
Fund held of record by the undersigned on ,
1994 at the Special Meeting of Shareholders to be
held on , 1994, or any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S).
IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL THE PROPOSALS
LISTED BELOW.
Your Account No.: Your voting shares are:
