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<PAGE> PAGE 2
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<PAGE> PAGE 3
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SIGNATURE SUSAN C. COTE'
TITLE TREASURER
For fiscal year ended (a) December 31, 1993
File number (c) 811-2992
SUB-ITEM 77L
Changes in Accounting Principles and Practices
Effective January 1, 1993, the Prudential National Municipals
Fund began accounting and reporting for distributions to
shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. The effect of adopting this statement was to
increase paid-in capital, and decrease accumulated undistributed
net realized gains on investments by $10,952 compared to amounts
previously reported through December 31, 1992. Net investment
income, net realized gains, and net assets were not affected by
this change.
For period ending (a) December 31, 1993
File Number (c) 811-2992
SUB-ITEM 77O
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer:
City of Atlanta, Georgia
2. Date of Purchases:
10/15/93
3. Face Amounts Purchased:
$9,510,000
4. Dollar Amounts of Purchases:
$9,628,010
5. Price Per Unit:
$92.426
6. Name(s) of Underwriter(s)
or Dealer(s) from whom Purchased:
Merrill Lynch & Co.
7. Other Underwriters in Syndicate:
Bear Stearns & Co. Inc./Ward and Associates Inc.
Dean Witter Reynolds Inc.
Lehman Brothers
PaineWebber Incorporated
Prudential Securities Incorporated
Pryor, McClendon, Counts & Co., Inc.
<PAGE>
For period ending (a) December 31, 1993
File Number (c) 811-2992
SUB-ITEM 77O
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer:
City of Chicago - Chicago O'Hare International Airport
2. Date of Purchases:
10/18/93
3. Face Amounts Purchased:
$8,750,000
4. Dollar Amounts of Purchases:
$9,390,850
5. Price Per Unit:
$107.324
6. Name(s) of Underwriter(s)
or Dealer(s) from whom Purchased:
Goldman, Sachs & Co.
7. Other Underwriters in Syndicate:
Apex Securities, Inc.
Artemis Capital Group, Inc.
Carmona, Motley & Company, Inc.
Dean Witter Reynolds Inc.
First Chicago Capital Markets, Inc.
Gaean Capital, Inc.
Hamilton Investments, Inc.
Kidder, Peabody & Co. Incorporated
Lazard Freres & Co.
Llama Company
Mesirow Financial, Inc.
Morgan Stanley & Co., Inc.
M.R. Beal & Company
Muriel Siebert & Co., Inc.
PaineWebber Incorporated
Pryor, McClendon, Counts & Co., Inc.
Reinoso & Company, Inc.
Smith Mitchell Investment Group Inc.
The Chicago Corporation
William Blair & Company
<PAGE>
For period ending (a) December 31, 1993
File Number (c) 811-2992
SUB-ITEM 77O
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer:
New York Local Government Assistance Corporation
2. Date of Purchases:
12/10/93
3. Face Amounts Purchased:
$9,200,000
4. Dollar Amounts of Purchase:
$9,933,516
5. Price Per Unit:
$107.973
6. Name(s) of Underwriter(s)
or Dealer(s) from whom Purchased:
Bear, Stearns & Co., Inc.
7. Other Underwriters in Syndicate:
Artemis Capital Group, Inc.
Chemical Securities, Inc.
CS First Boston
First Albany Corporation
Goldman Sachs & Co.
J.P. Morgan Securities, Inc.
Lazard Freres & Co.
Lehman Brothers
Merrill Lynch & Co.
Morgan Stanley & Co. Incorporated
M.R. Beal & Company
PaineWebber Incorporated
Prudential Securities Incorporated
Roosevelt & Cross, Inc.
Samuel A. Ramirez & Co., Inc.
<PAGE>
For period ending (a) December 31, 1993
File Number (c) 811-2992
SUB-ITEM 77O
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer:
Dormitory Authority of the State of New York
2. Date of Purchase:
12/16/93
3. Face Amount Purchased:
$3,000,000
4. Dollar Amount of Purchase:
$2,820,000
5. Price Per Unit:
$94.000
6. Name(s) of Underwriter(s)
or Dealer(s) from whom Purchased:
PaineWebber Incorporated
7. Other Underwriters in Syndicate:
Artemis Capital Group, Inc.
Bear, Stearns & Co. Inc.
Dillon, Read & Co., Inc.
Goldman Sachs & Co.
Grigsby Branford & Co., Inc.
J.P. Morgan Securities, Inc.
Lehman Brothers
M.R. Beal & Company
WR Lazard, Laidlaw & Mead, Inc.
For period ending (a) December 31, 1993
File Number (c) 811-2992
Sub Item 77Q1
PRUDENTIAL-BACHE NATIONAL MUNICIPALS FUND, INC.
By-Laws
ARTICLE I
Stockholders
Section 1. Place of Meeting. All meetings of the
stockholders shall be held at the principal office of the
Corporation in the State of Maryland or at such other place within
the United States as may from time to time be designated by the
Board of Directors and stated in the notice of such meeting.
Section 2. Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held in the month of April
of each year on such date and at such hour as may from time to time
be designated by the Board of Directors and stated in the notice of
such meeting, for the transaction of such business as may properly
be brought before the meeting; provided, however, that an annual
meeting is not required to be held in any year in which the
election of directors is not required to be acted upon by
stockholders pursuant to the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special
or extraordinary meetings of the stockholders for any purpose or
purposes may be called by the Chairman of the Board, the President
or a majority of the Board of Directors, and shall be called by the
Secretary upon receipt of the request in writing signed by
stockholders holding not less than 25% of the common stock issued
and outstanding and entitled to vote thereat. Such request shall
state the purpose or purposes of the proposed meeting. The
Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and mailing such notice of meeting and
upon payment to the Corporation of such costs, the Secretary shall
give notice stating the purpose or purposes of the meeting as
required in this Article and by-law to all stockholders entitled to
notice of such meeting. No special meeting need be called upon the
request of the holders of shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting to
consider any matter which is substantially the same as a matter
voted upon at any special meeting of stockholders held during the
preceding twelve months.
Section 4. Notice of Meetings of Stockholders. Not less
that ten days' and not more than ninety days' written or printed
notice of every meeting of stockholders, stating the time and place
thereof (and the general nature of the business proposed to be
transacted at any special or extraordinary meeting), shall be given
to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by
mailing it, postage prepaid, and addressed to him at his address as
it appears upon the books of the Corporation. If mailed, notice
shall be deemed to be given when deposited in the United States
mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person
or by proxy or to any stockholder who, in writing executed and
filed with the records of the meeting, either before or after the
holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may
fix, in advance, a date not exceeding ninety days preceding the
date of any meeting of stockholders, any dividend payment date or
any date for the allotment of rights, as a record date for the
determination of the stockholders entitled to notice of and to vote
at such meeting or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive
such dividends or rights, as the case may be. In the case of a
meeting of stockholders, such date shall not be less than ten days
prior to the date fixed for such meeting.
Section 6. Quorum, Adjournment of Meetings. The
presence in person or by proxy of the holders of record of a
majority of the shares of the common stock of the Corporation
issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as
otherwise provided in the Articles of Incorporation. If, however,
such quorum shall not be present or represented at any meeting of
the stockholders, the holders of a majority of the stock present in
person or by proxy shall have power to adjourn the meeting from
time to time, without notice other than announcement at the
meeting, until the requisite number of stockholders entitled to
vote at such meeting shall be present. At such adjourned meeting
at which the requisite amount of stock entitled to vote thereat
shall be represented any business may be transacted which might
have been transacted at the meeting as originally notified.
Section 7. Voting and Inspectors. At all meetings,
stockholders of record entitled to vote thereat shall have one vote
for each share of common stock standing in his name on the books of
the Corporation (and such stockholders of record holding fractional
shares, if any, shall have proportionate voting rights) on the date
for the determination of stockholders entitled to vote at such
meeting, either in person or by proxy appointed by instrument in
writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by
a majority of the votes cast at a duly constituted meeting, except
as otherwise provided by statute or by the Articles of
Incorporation or by these By-Laws.
At any election of Directors, the Chairman of the meeting
may, and upon the request of the holders of ten percent (10%) of
the stock entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of
their ability, and shall after the election make a certificate of
the result of the vote taken. No candidate for the office of
Director shall be appointed such Inspector.
Section 8. Conduct of Stockholders' Meetings. The
meetings of the stockholders shall be presided over by the Chairman
of the Board, or if he is not present, by the President, or if he
is not present, by a Vice-President, or if none of them is present
by a Chairman to be elected at the meeting. The Secretary of the
Corporation, if present, shall act as a Secretary of such meetings,
or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor the Assistant Secretary is present, then
the meeting shall elect its Secretary.
Section 9. Concerning Validity of Proxies, Ballots, etc.
At every meeting of the stockholders, all proxies shall be received
and taken in charge of and all ballots shall be received and
canvassed by the Secretary of the meeting, who shall decide all
questions concerning the qualification of voters, the validity of
the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of
the meeting, in which event such inspectors of election shall
decide all such questions.
ARTICLE II
Board of Directors
Section 1. Number and Tenure of Office. The business
and affairs of the Corporation shall be conducted and managed by a
Board of Directors of not less than three nor more than nine
Directors, as may be determined from time to time by vote of a
majority of the Directors then in office. Directors need not be
stockholders.
Section 2. Vacancies. In case of any vacancy in the
Board of Directors through death, resignation or other cause, other
than an increase in the number of Directors, a majority of the
remaining Directors, although a majority is less than a quorum, by
an affirmative vote, may elect a successor to hold office until the
next annual meeting of stockholders or until his successor is
chosen and qualifies.
Section 3. Increase or Decrease in Number of Directors.
The Board of Directors, by the vote of a majority of the entire
Board, may increase the number of Directors and may elect Directors
to fill the vacancies created by any such increase in the number of
Directors until the next annual meeting or until their successors
are duly chosen and qualified. The Board of Directors, by the vote
of a majority of the entire Board, may likewise decrease the number
of Directors to a number not less than three.
Section 4. Place of Meeting. The Directors may hold
their meetings, have one or more offices, and keep the books of the
Corporation, outside the State of Maryland, at any office or
offices of the Corporation or at any other place as they may from
time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall
be specified or fixed in the respective notices or waivers of
notice thereof.
Section 5. Regular Meetings. Regular meetings of the
Board of Directors shall be held at such time and on such notice as
the Directors may from time to time determine.
The annual meeting of the Board of Directors shall be
held as soon as practicable after the annual meeting of the
stockholders for the election of Directors.
Section 6. Special Meetings. Special meetings of the
Board of Directors may be held from time to time upon call of the
Chairman of the Board, the President, the Secretary or two or more
of the Directors, by oral or telegraphic or written notice duly
served on or sent or mailed to each Director not less than one day
before such meeting. No notice need be given to any Director who
attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the
holding thereof, waives such notice. Such notice or waiver of
notice need not state the purpose or purposes of such meeting.
Section 7. Quorum. One-third of the Directors then in
office shall constitute a quorum for the transaction of business,
provided that a quorum shall in no case be less than two Directors.
If at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from
time to time until a quorum shall be obtained. The act of the
majority of the Directors present at any meeting at which there is
a quorum shall be the act of the Directors, except as may be
otherwise specifically provided by statute or by the Articles of
Incorporation or by these By-Laws.
Section 8. Executive Committee. The Board of Directors
may, by the affirmative vote of a majority of the entire Board,
appoint from the Directors an Executive Committee to consist of
such number of Directors (not less than three) as the Board may
from time to time determine. The Chairman of the Committee shall
be elected by the Board of Directors. The Board of Directors by
such affirmative vote shall have power at any time to change the
members of such Committee and may fill vacancies in the Committee
by election from the Directors. When the Board of Directors is not
in session, to the extent permitted by law the Executive Committee
shall have and may exercise any or all of the powers of the Board
of Directors in the management of the business and affairs of the
Corporation. The Executive Committee may fix its own rules of
procedure, and may meet when and as provided by such rules or by
resolution of the Board of Directors, but in every case the
presence of a majority shall be necessary to constitute a quorum.
During the absence of a member of the Executive Committee, the
remaining members may appoint a member of the Board of Directors to
act in his place.
Section 9. Other Committees. The Board of Directors, by
the affirmative vote of a majority of the whole Board, may appoint
from the Directors other committees which shall in each case
consist of such number of Directors (not less than two) and shall
have and may exercise such powers as the Board may determine in the
resolution appointing them. A majority of all the members of any
such committee may determine its action and fix the time and place
of its meetings, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power at any time to
change the members and powers of any such committee, to fill
vacancies and to discharge any such committee.
Section 10. Telephone Meetings. Members of the Board of
Directors or a committee of the Board of Directors may participate
in a meeting by means of a conference telephone or similiar
communications equipment if all persons participating in the
meeting can hear each other at the same time. Participation in a
meeting by these means constitutes presence in person at the
meeting.
Section 11. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting,
if a written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written
consent if filed with the minutes of the proceedings of the Board
or committee.
Section 12. Compensation of Directors. No Director
shall receive any stated salary or fees from the Corporation for
his services as such if such Director is, otherwise than by reason
of being such Director, an interested person (as such term is
defined by the Investment Company Act of 1940) of the Corporation
or of its investment adviser, administrator or principal
underwriter. Except as provided in the preceding sentence,
Directors shall be entitled to receive such compensation from the
Corporation for their services as may from time to time be voted by
the Board of Directors.
Section 13. Nominating Committee. The Board of
Directors may be the affirmative vote of a majority of the entire
Board appoint from its members a Nominating Committee composed of
two or more directors who are not "interested persons" (as defined
in the Investment Company Act of 1940) of the Corporation, as the
Board may from time to time determine. The Nominating Committee
shall be empowered to elect its own chairman who may call, or
direct the Secretary of the Corporation to call meetings in
accordance with the notice provisions of these By-laws otherwise
applicable to meetings of the Board of Directors. The Nominating
Committee shall recommend to the Board a slate of persons who are
not "interested person" (as defined in the Investment Company Act
of 1940) of the Corporation, which may include members of the
Nominating Committee, to be nominated for election as directors by
the stockholders at each annual meeting of stockholders and to fill
any vacancy occurring for any reason among the directors who are
not such interested persons.
ARTICLE III
Officers
Section 1. Executive Officers. The executive officers
of the Corporation shall be chosen by the Board of Directors as
soon as may be practicable after the annual meeting of the
stockholders. These may include a Chairman of the Board of
Directors (who shall be a Director) or a Chairman of the Fund and
shall include a President, one or more Vice-Presidents (the number
thereof to be determined by the Board of Directors), a Secretary
and a Treasurer. The Board of Directors or the Executive Committee
may also in its discretion appoint Assistant Secretaries, Assistant
Treasurers and other officers, agents and employees, who shall have
such authority and perform such duties as the Board or the
Executive Committee may determine. The Board of Directors may fill
any vacancy which may occur in any office. Any two officers,
except those of President and Vice-President, may be held by the
same person, but no officer shall execute, acknowledge or verify
any instrument in more than one capacity, if such instrument is
required by law or these By-Laws to be executed, acknowledge or
verified by two or more officers.
Section 2. Term of Office. The term of office of all
officers shall be one year and until their respective successors
are chosen and qualified. Any officer may be removed from office
at any time with or without cause by the vote of a majority of the
whole Board of Directors.
Section 3. Powers and Duties. The officers of the
Corporation shall have such powers and duties as generally pertain
to their respective offices, as well as such powers and duties as
may from time to time be conferred by the Board of Directors or the
Executive Committee.
ARTICLE IV
Capital Stock
Section 1. Certificates for Shares. Each stockholder of
the Corporation shall be entitled to a certificate or certificates
for the full shares of stock of the Corporation owned by him in
such form as the Board may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the
Corporation shall be transferable on the books of the Corporation
by the holder thereof in person or by his duly authorized attorney
or legal representative, upon surrender and cancellation of
certificates, if any, for the same number of shares, duly endorsed
or accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the
Corporation or his agents may reasonably require; in the case of
shares not represented by certificates, the same or similar
requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the
Corporation, containing the name and address of the stockholders
and the number of shares held by them respectively, shall be kept
at the principal office of the Corporation or, if the Corporation
employs a Transfer Agent, at the office of the Transfer Agent of
the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Directors or the Executive Committee may determine the
conditions upon which a new certificate of stock of the Corporation
of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in its
discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to the
Corporation and each Transfer Agent, if any, and to indemnify it
and each Transfer Agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
ARTICLE V
Corporate Seal
The Board of Directors may provide for a suitable
corporate seal, in such form and bearing such inscriptions as it
may determine.
ARTICLE VI
Fiscal Year
The fiscal year of the Corporation shall begin on the
first day of January and shall end on the thirty-first day of
December in each year.
ARTICLE VII
Indemnification
The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines,
settlements and expenses to the fullest extent authorized and in
the manner permitted, by applicable federal and state law.
ARTICLE VIII
Checks, Notes, Etc.
All check and drafts on the Corporation's bank account
and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of
money, shall be signed by such officer or officers, or agents, as
shall be thereunto authorized from time to time by the Board of
Directors.
ARTICLE IX
Amendment of By-Laws
The By-Laws of the Corporation may be altered, amended,
added to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment,
addition or repeal of the By-Laws by action of the Board of
Directors may be altered or repealed by stockholders.
As amended on 5/3/93
February 17, 1994
To the Board of Directors of
Prudential National Municipals Fund
In planning and performing our audit of the financial statements of
Prudential National Municipals Fund (the "Fund") for the year ended
December 31, 1993, we considered its internal control structure,
including procedures for safeguarding securities, in order to
determine our auditing procedures for the purposes of expressing our
opinion on the financial statements and to comply with the
requirements of Form N-SAR, and not to provide assurance on the
internal control structure.
The management of the Fund is responsible for establishing and
maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to
assess the expected benefits and related costs of internal control
structure policies and procedures. Two of the objectives of an
internal control structure are to provide management with reasonable,
but not absolute, assurance that assets are appropriately safeguarded
against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's
authorization and recorded properly to permit preparation of financial
statements in conformity with generally accepted accounting
principles.
Because of inherent limitations in any internal control structure,
errors or irregularities may occur and not be detected. Also,
projection of any evaluation of the structure to future periods is
subject to the risk that it may become inadequate because of changes
in conditions or that the effectiveness of the design and operation
may deteriorate.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control structure
that might be material weaknesses under standards established by the
American Institute of Certified Public Accountants. A material
weakness is a condition in which the design or operation of the
specific internal control structure elements does not reduce to a
relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions.
However, we noted no matters involving the internal control structure,
including procedures for safeguarding securities, that we consider to
be material weaknesses as defined above as of December 31, 1993.
This report is intended solely for the information and use of
management and the Securities and Exchange Commission.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, NY 10036
Board of Directors or Trustees of:
Prudential Adjustable Rate Securities Fund
The BlackRock Government Income Trust
Prudential California Municipal Fund
Prudential Equity Fund
Prudential Equity Income Fund
Prudential FlexiFund (2 Portfolios)
Prudential GNMA Fund
Prudential Global Fund
Prudential Global Genesis Fund
Prudential Global Natural Resources Fund
Prudential Government Plus Fund
Prudential Growth Fund
Prudential Growth Opportunity
Prudential High Yield Fund
Prudential IncomeVertible Fund
Prudential Intermediate Global Income Fund
Prudential Multi-Sector Fund
Prudential Municipal Bond Fund (3 Portfolios)
Prudential Municipal Series Fund (11 Portfolios)
Prudential National Municipals Fund
Prudential Pacific Growth Fund
Prudential Short-Term Global Income Fund (2 Portfolios)
Prudential Strategic Income Fund
Prudential Structured Maturity Fund
Prudential U.S. Government Fund
Prudential Utility Fund
Global Utility Fund, Inc.
Nicholas-Appelgate Fund, Inc.
We have examined the accompanying description of the Prudential Dual Pricing
Worksheet (the "Worksheet") application of State Street Bank and Trust Company
("State Street"), custodian and recordkeeper for the Prudential Mutual Funds
(the "Funds"). Our examination included procedures to obtain reasonable
assurance about whether (1) the accompanying description presents fairly, in
all material respects, the aspects of State Street's policies and procedures
that may be relevant to a Fund's internal control structure relating to the
Worksheet, (2) the control structure policies and procedures included in the
description were suitably designed to achieve the control objectives specified
in the description, if those policies and procedures were complied with
satisfactorily, and (3) such policies and procedures had been placed in
operation as of June 30, 1993. The control objectives were specified by
Prudential Mutual Fund Management. Our examination was performed in accordance
with standards established by the American Institute of Certified Public
Accountants and included those procedures we considered necessary in the
circumstances to obtain a reasonable basis for rendering our opinion.
In our opinion, the accompanying description of the aforementioned application
presents fairly, in all material respects, the relevant aspects of State
Street's policies and procedures that had been placed in operation as of June
30, 1993. Also, in our opinion, the policies and procedures, as described, are
suitably designed to provide reasonable assurance that the specified control
objectives would be achieved if the described policies and procedures were
complied with satisfactorily.
In addition to the procedures we considered necessary to render our opinion as
expressed in the previous paragraph, we applied tests to specific policies and
procedures, listed in Section I, to obtain evidence about their effectiveness
in meeting the control objectives, described in Section I during the period
from July 1, 1992 to June 30, 1993. The nature, timing, extent, and results of
the tests are listed in Section II. In our opinion the policies and procedures
that were tested, as described in Section II, were operating with sufficient
effectiveness to provide reasonable, but not absolute, assurance that the
control objectives specified in Section I were achieved during the period from
July 1, 1992 to June 30, 1993.
The relative effectiveness and significance of specific policies and procedures
at State Street, and their effect on assessments of control risk on the Funds
are dependent on their interaction with the policies, procedures, and other
factors present at individual Funds. We have performed no procedures to
evaluate the effectiveness of policies and procedures at individual Funds in
connection with this report.
The description of policies and procedures at State Street is as of June 30,
1993, and information about tests of the operating effectiveness of specified
policies and procedures covers the period from July 1, 1992 to June 30, 1993.
Any projection of such information to the future is subject to the risk that,
because of change, the description may no longer portray the system in
existence. The potential effectiveness of specified policies and procedures at
State Street is subject to inherent limitations and, accordingly, errors or
irregularities may occur and not be detected. Furthermore, the projection of
any conclusions, based on our findings, to future periods is subject to the
risk that changes may alter the validity of such conclusions.
This report is intended solely for use by the management and Boards of
Directors/Trustees of the Funds, the independent auditors of the Funds and the
Securities and Exchange Commission.
DELOITTE & TOUCHE
August 13, 1993
SECTION I
Policies and Procedures Placed in Operation
Prudential Dual Pricing Worksheet
Effective January 22, 1990, the Funds, offered by Prudential Securities
Incorporated (formerly Prudential-Bache Securities, Inc.) and Prudential Mutual
Fund Distributors, Inc., adopted a dual pricing system. The dual pricing
system consists of two classes of shares (Class A and Class B) for the Funds.
The Class A shares are subject to a front-end sales load and the Class B shares
are subject to a contingent deferred sales charge. The two classes of shares
represent interests in the same portfolio of investments of the respective Fund
and are identical in all respects, except that each class is subject to
different distribution expenses and has exclusive voting rights with respect to
the Rule 12b-1 distribution plan pursuant to which such distribution expenses
are paid.
In order to allocate income and expenses between the two classes of shares,
State Street Bank and Trust Company (the Funds' custodian and recordkeeper)
utilizes the Prudential Dual Pricing Worksheet (the "Worksheet") (see Exhibit
I). The Worksheet is a manual supplementary application that extracts relevant
data from the Funds' primary accounting system, allocates income and expenses
between the two classes of shares and computes the daily net asset value and,
if applicable, the dividend/distribution for each class of shares. Internal
accounting controls that are relevant to the Fund can be divided into two
components - controls related to the mutual fund accounting system resident at
State Street Bank and Trust Company (the "primary accounting system") and
controls related to the Worksheet.
The specific control objectives and policies and procedures relating to the
Worksheet are described on pages 4 and 5. A description of the tests of the
policies and procedures designed to obtain evidence about the operating
effectiveness of those policies and procedures in achieving the specific
control objectives is included in Section II.
Control Objectives and Policies and Procedures
Prudential Dual Pricing Worksheet
The Worksheet is a supplementary manual application to the Funds' primary
accounting system. Certain data is extracted from the primary accounting
system to allocate income and expenses and to calculate the daily net asset
value and, if applicable, dividends/distributions for each class of shares.
The primary accounting system includes the details of transactions in
accordance with the Investment Company Act of 1940, as amended.
The following represents the internal accounting control objectives and
policies and procedures for the allocation of income and expenses and the
computation of the net asset value and, if applicable, the
dividend/distribution for each class of shares utilizing the Worksheet. It
does not cover the internal accounting control policies and procedures
surrounding the processing of information into the Funds' primary accounting
system.
CONTROL OBJECTIVES CONTROL POLICIES AND PROCEDURES
A. Capital share activity 1. Daily, the transfer agent forwards
as reported by the Fund's reports of capital share capital share
transfer agent is recorded activity for each class which includes
for each class in an accurate a summary of subscriptions,
and timely manner by the fund. redemptions, exchanges and other
information (the "Supersheet"). The
opening day's balance for shares
outstanding and for shares eligible for
dividends are recorded on the
Worksheet. shares eligible for
dividends are recorded on
2. Estimated interim share activity
for the current day not recorded in the
Supersheet is received via telefax from
the transfer agent and is recorded for
each class on the Worksheet.
B. Net Asset Value ("NAV") 1. The prior days ending NAV per
and, if applicable, the share (unrounded) for each class is
dividend/distribution for agreed to the prior day's Worksheet.
each class are accurately
computed on a daily basis. 2. The daily net capital stock
activity for each class for the current
day is agreed to the Supersheet as
described in Control Procedures A.1 and
2., above.
3. Percentage Assets by Class and
Percentage Dividend Assets by Class are
calculated for each class based upon
information from the prior day
Worksheet and information recorded on
the Supersheet.
CONTROL OBJECTIVES CONTROL POLICIES AND PROCEDURES
4. Allocate investment income between
classes based on the appropriate asset
allocation percentage for each class.
5. Agree composite dividend income,
interest income, income amortization,
income equalization, management fees,
other expenses, realized gains and
losses, and unrealized
appreciation/depreciation to the
primary accounting system of the Fund.
6. Allocate expenses between classes
as follows:
a. Expenses directly
attributable to each class (12b-1
distribution expenses) are calculated
and recorded to that class.
b. Expenses attributable to both
classes are allocated in accordance
with the appropriate asset allocation
percentage for each class.
7. Allocate realized and
unrealized gains and losses between the
classes in accordance with the
appropriate asset allocation percentage
of each class.
8. Record dividends/distributions to
shareholders of each class in the
primary accounting system.
9. Aggregate the net assets for each
class and agree to the total net assets
per the primary accounting system.
10. For each class, reconcile the
current day's NAV and, if applicable,
the dividend/distribution to the
previous day's NAV and
dividend/distribution for each class.
11. The above procedures are reviewed
by the Fund supervisor or manager.
SECTION II
Tests of Operating Effectiveness
Prudential Dual Pricing Worksheet
July 1, 1992 to June 30, 1993
We reviewed the methodology and procedures for calculating the daily net asset
value and, if applicable, the dividends/distributions of the two classes of
shares and the allocation of income and expenses between the two classes of
shares.
The following are the detailed procedures which we performed with respect to
the Worksheet. These procedures were performed for selected days encompassing
all Funds subject to dual pricing during the year ended June 30, 1993, which we
believe is a representative sample, to test compliance with the control
policies and procedures as described in Section I.
Prudential Mutual Fund Management, Inc. is the manager of the Funds and has
represented to us that adequate facilities are in place to ensure
implementation of the methodology and procedures for calculating the net asset
value and dividends/distributions of the two classes of shares and the
allocation of income and expenses between the two classes of shares. Based on
our review of the description of the policies and procedures of the Worksheet,
as described in Section I, and performance of tests of operating effectiveness
as described in Section II, we concur with such representation.
Agreed "Prior Day NAV Per Share" to the previous day's Worksheet and
to the rounded NAV included on the Supersheet for each class.
Agreed "Shares Outstanding Beginning of the Day" to the Supersheet
for each class.
Agreed "Activity/Estimate" to the estimated interim share activity
reported via fax from the transfer agent for each class.
Recalculated "Current Shares Outstanding" by adding "Shares
Outstanding Beginning of the Day" and "Activity/Estimate" for each
class.
Recalculated for each class "Adjusted Total Assets" by multiplying
"Prior Day NAV Per Share" by "Current Shares Outstanding."
Recalculated "Percentage Assets-Class A/Front End" by dividing
"Adjusted Total Assets-Class A/Front End" by "Adjusted Total Assets
Composite."
Recalculated "Percentage Assets-Class B/Back End" by dividing
"Adjusted Total Assets-Class B/Back End" by "Adjusted Total Assets
Composite."
Agreed "Dividend Shares Beginning of Day" to the Supersheet for each
class.
Agreed "Activity/Estimate" to the estimated interim share activity
reported via fax from the transfer agent for each class.
Recalculated "Current Dividend Shares" by adding "Dividend Shares
Beginning of Day" and "Activity/Estimate" for each class.
Recalculated for each class "Adjusted Dividend Assets" by multiplying
"Prior Day NAV Per Share" by "Current Dividend Shares."
Recalculated "Percentage Dividend Assets-Class A/Front End" by
dividing "Adjusted Dividend Assets-Class A/Front End" by "Adjusted
Dividend Assets Composite."
Recalculated "Percentage Dividend Assets-Class B/Back End" by
dividing "Adjusted Dividend Assets-Class B/Back End" by "Adjusted
Dividend Assets Composite."
Agreed composite total "Dividend Income", "Interest Income",
"Amortization" and "Income Equalization" to the primary accounting
system.
Recalculated the allocation for each class of "Dividend Income",
"Interest Income" and "Amortization" for daily dividend funds by
multiplying the composite total by "Percentage Dividend Assets-Class
A/Front End" and "Percentage Dividend Assets-Class B/Back End," and
for non-daily dividend funds by multiplying the composite total by
"Percentage Assets-Class A/Front End" and "Percentage Assets-Class
B/Back End."
Recalculated "Daily Income", composite and for each class, by
totaling "Dividend Income", "Interest Income", "Amortization" and
"Income Equalization."
Agreed composite total "Management Fee" and "Other Fixed Expenses" to
the primary accounting system.
Recalculated the allocation for each class of "Management Fee" and
"Other Fixed Expenses" for daily dividend funds by multiplying the
composite total by "Percentage Dividend Assets-Class A/Front End" and
"Percentage Dividend Assets-Class B/Back End," and non-daily dividend
funds by multiplying the composite total by "Percentage Assets-Class
A/Front End" and "Percentage Assets-Class B/Back End."
Agreed the "12b-1 Fee-Class A/Front End" and "12b-1 Fee-Class B/Back
End" to the respective "PC Expense Worksheet."
Recalculated "Daily Expense", composite and for each class, by
totaling "Management Fee", "12b-1 Fee" and "Other Fixed Expenses."
Recalculated "Daily Net Income" for each class by subtracting "Daily
Expense" from "Daily Income."
Recalculated "Dividend Rate" for each class for daily dividend funds
by dividing "Daily Net Income" by "Dividend Shares Beginning of
Day-Class A/Front End" and "Dividend Shares Beginning of Day-Class
B/Back End."
Agreed "Daily Income" and "Income Distribution" for each class to the
primary accounting system.
Recalculated "Undistributed Net Income" for each Class by subtracting
"Income Distribution" from "Income Available for Distribution."
Agreed "Capital Stock Activity" for each Class to the Supersheet.
Agreed the "Capital Gain Distribution" to the amount recorded in the
primary accounting system.
Agreed composite total "Realized Gain/Loss", "Unrealized
Appreciation/Depreciation", "Unrealized Appreciation/Depreciation -
Options" and "Unrealized Appreciation/Depreciation - Futures" to the
primary accounting system.
Recalculated the allocation for each class of "Realized Gain/Loss",
"Unrealized Appreciation/Depreciation", "Unrealized
Appreciation/Depreciation - Options" and "Unrealized
Appreciation/Depreciation - Futures" by multiplying the composite
amount by the "Percentage Assets-Class A/Front End" and "Percentage
Assets-Class B/Back End."
Agreed "Prior Days Net Assets" to the previous day's Worksheet.
Recalculated "Net Assets", composite and for each class, by totaling
"Undistributed Net Income", "Capital Stock Activity", "Capital Gain
Distribution", "Realized Gain/Loss", "Unrealized
Appreciation/Depreciation", "Unrealized Appreciation/Depreciation -
Options", "Unrealized Appreciation/Depreciation - Futures", and
"Prior Days Net Assets."
Recalculated "NAV Per Share" dividing the "Net Assets-Class A/Front
End" and "Net Assets - Class B/Back End" by "Current Shares
Outstanding - Class A/Front End" and 'Current Shares Outstanding -
Class B/Back End", respectively.
Recalculated "Offering Price" for Class A shares by applying the
"Load" percentage as stated in the fund's prospectus.
