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PRELIMINARY COPY
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 UTILITY FUND, INC.
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(Name of Registrant as Specified in Its Charter)
PRUDENTIAL-BACHE UTILITY FUND, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(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.
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PRELIMINARY COPY
PRUDENTIAL UTILITY 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 Utility Fund, Inc., doing business as Prudential Utility
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 modify the Fund's investment objective to expand the equity
and debt securities in which the Fund may invest.
6. To approve the elimination of the Fund's fundamental investment
restrictions regarding restricted and illiquid securities.
7. To approve an amendment of the Fund's investment policies and
restrictions to permit certain hedging and income enhancement
strategies using over-the-counter options on securities of utility and
non-utility companies and stock index options on securities of
non-utility companies.
8. To approve an amendment of the Fund's investment policies and
restrictions to permit certain hedging and income enhancement
strategies using futures contracts and options thereon and futures
contracts on foreign currencies and options thereon.
9. To approve an amendment of the Fund's investment restrictions to
permit investments in forward foreign currency exchange contracts and
options on foreign currencies.
10. To approve an amendment of the Fund's investment restriction
limiting the Fund's ability to invest in a security if the Fund would
hold more than 10% of any class of securities of an issuer.
11. 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 the Fund's adviser own more than a specified interest.
12. To approve an amendment to the Management Agreement between the
Fund and Prudential Mutual Fund Management, Inc. to reduce management
fees.
13. To approve an amendment to the Articles of Incorporation to
change the name of the Fund to "Prudential Utility Fund, Inc."
14. To ratify the selection by the Board of Directors of Price
Waterhouse as independent accountants for the year ending December 31,
1994.
15. To transact such other business as may properly come before the
Meeting or any adjournment 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
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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.
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PRUDENTIAL UTILITY FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
----------------
PROXY STATEMENT
----------------
This statement is furnished by the Board of Directors of
Prudential-Bache Utility Fund, Inc., doing business as Prudential Utility
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 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 the 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 matters
which require approval by a requisite percentage of the outstanding shares.
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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
$250,000 and will be borne by the Fund. In addition, such solicitations 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 Robert R. Fortune, Delayne D. Gold, Harry A.
Jacobs, Jr., Lawrence C. McQuade, Thomas A. Owens, Jr., Richard A. Redeker,
Robert J. Schultz and Merle T. Welshans, all of whom are currently members
of the Board of Directors. Each of 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 Mr.
Redeker, have previously been elected by the shareholders. All of the
Directors except for Messrs. Jacobs, McQuade and Redeker have served as
Directors since 1981. Mr. Jacobs has served as a Director since 1982, Mr.
McQuade has served as a Director since February 1988 and Mr. Redeker has
served as a Director since December 1993.
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.
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INFORMATION REGARDING DIRECTORS
Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund [ ,] 1994
---------------------------- --------- -------------------
Robert R. Fortune (77), Financial Consultant; Director [5,482,268]
previously Chairman, President and Chief
Executive Officer of Associated Electric & Gas
Insurance Services Limited and Aegis Insurance
Services, Inc.; Director of Independence Square
Income Securities, Inc., Temporary Investment
Fund, Inc., Portfolios for Diversified
Investment, Inc., Prudential IncomeVertible(R)
Fund, Inc., Prudential Structured Maturity Fund
and Prudential Utility Fund; Trustee of Trust
for Short-Term Federal Securities, Municipal
Fund for Temporary Investment and The PNC Fund;
Managing General Partner of Chestnut Street
Exchange Fund.
Delayne D. Gold (55), Marketing and Man- Director -0-
agement Consultant; Director of Prudential
Adjustable Rate Securities Fund, Inc.,
Prudential Equity 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, Prudential
Tax-Free Money Fund and Prudential Utility Fund;
Trustee of The BlackRock Government Income
Trust, Command Government Fund, Command Money
Fund, Command Tax-Free Fund, Prudential
California Municipal Fund, Prudential Government
Securities Trust, Prudential Municipal Series
Fund and Prudential U.S. Government Fund.
*Harry A. Jacobs, Jr. (72), Senior Director (since Director -0-
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 Executive Officer of
Bache
3
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Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund [ ,] 1994
---------------------------- --------- -------------------
Group Inc. (1977-1982); Director of the Center
for National Policy, Prudential Adjustable Rate
Securities Fund, Inc., Prudential Equity 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, 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 Government
Income Trust, Command Money Fund, Command
Government Fund, Command Tax-Free Fund,
Prudential California Municipal Fund, Prudential
Municipal Series Fund and Prudential U.S.
Government Fund.
*Lawrence C. McQuade (66), Vice Chairman of PMF President [3,631.782]
(since 1988); Managing Director, Investment and
Banking, Prudential Securities (1988-1991); Director
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
Prudential 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 Government 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
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Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund [ ,] 1994
---------------------------- --------- -------------------
Intermediate Global Income Fund, Inc.,
Prudential MoneyMart Assets, Prudential
Multi-Sector Fund, Inc., 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, Prudential
Tax-Free Money Fund, Prudential Utility Fund,
The Global Government 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
Government Fund, Command Money Fund, Command
Tax-Free Fund, Prudential California Municipal
Fund, Prudential Equity Income Fund, Prudential
FlexiFund, Prudential Government Securities
Trust, Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential
U.S. Government Fund and The Target Portfolio
Trust.
Thomas A. Owens, Jr. (71), Consultant; Director of Director -0-
EMCORE Corporation (manufacturer of electronic
materials), Prudential Adjustable Rate
Securities Fund, Inc., Prudential Global Fund,
Inc., Prudential Government Plus Fund,
Prudential Growth Fund, Inc., Prudential
IncomeVertible(R) Fund, Inc., Prudential
Intermediate Global Income Fund, Inc.,
Prudential MoneyMart Assets, Prudential Pacific
Growth Fund, Inc., Prudential Short-Term Global
Income Fund, Inc., Prudential Structured
Maturity Fund and Prudential Utility Fund;
Trustee of Prudential U.S. Government Fund.
*Richard A. Redeker (50), President, Chief Execu- Director -0-
tive Officer and Director (since October 1993),
PMF; Executive Vice President, Director and
Member of the Operating Committee (since October
1993), Prudential Securities Incorporated;
Director (since October 1993) of Prudential
Securities Group, Inc. (PSG); formerly Senior
Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-
September 1993); Director of
5
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Shares of
Name, age, business Common Stock
experience during the past Position owned at
five years and directorships with Fund [ ,] 1994
---------------------------- --------- -------------------
Global Utility Fund, Inc., Prudential 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 Government Plus Fund,
Prudential Growth Fund, Inc., Prudential
IncomeVertible(R) Fund, Inc., Prudential
Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund,
Inc., Prudential MoneyMart Assets, Prudential
Multi-Sector Fund, Inc., Prudential Pacific
Growth Fund, Inc., Prudential Short-Term Global
Income Fund, Inc., Prudential Special Money
Market Fund, Prudential Structured 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 BlackRock Government Income
Trust, Command Government Fund, Command Money
Fund, Command Tax-Free Fund, Prudential
California Municipal Fund, Prudential Equity
Income Fund, Prudential FlexiFund, Prudential
Municipal Bond Fund, Prudential Municipal Series
Fund, Prudential U.S. Government Fund and The
Target Portfolio Trust.
Robert J. Schultz (69), Retired (since January Director -0-
1987); formerly Financial Vice President of
Commonwealth Edison Company (electric power
company); Director of Prudential Growth Fund,
Inc., Prudential IncomeVertible(R) Fund, Inc.,
Prudential Intermediate Global Income Fund,
Inc., Prudential MoneyMart Assets, Prudential
Structured Maturity Fund and Prudential Utility
Fund.
Merle T. Welshans (75), Adjunct Professor of Director [2,719.2940]
Finance, Washington University (since July
1983); prior thereto, Vice President-Finance of
Union Electric Company; Director of Prudential
IncomeVertible(R) Fund, Inc., Prudential
Structured Maturity Fund and Prudential Utility
Fund; Trustee of the Olympic Trust Funds of Los
Angeles.
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*Indicates "interested" Director, as defined in the Investment Company
Act, by reason of his affiliation with PMF or Prudential Securities.
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The Directors and officers of the Fund as a group owned beneficially
[15,992.259] shares of the Fund as of [ ,] 1994 representing less than 1% of
the outstanding shares of the Fund.
The Fund pays annual compensation of $9,000, plus travel and incidental
expenses, to each of the five Directors not affiliated with PMF or
Prudential Securities. 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 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 approximately $54,000 and travel and
incidental expenses of approximately $3,400.
There were four regular meetings and two special 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. Fortune, Owens, Schultz and Welshans, 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 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 twice 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, Harry A. Jacobs, Jr.
attended fewer than 75% of the aggregate of the total number of meetings of
the Board of Directors and any committees thereof of which he was a member.
The executive officers of the Fund, other than as shown above, are: S.
Jane Rose, Secretary, having held office since July 31, 1985, Robert F.
Gunia, Vice President, and Susan C. Cote, Treasurer and Principal Financial
and Accounting Officer, both having held office since May 7, 1987, and
Marguerite E. H. Morrison, Assistant Secretary, having held office since
June 5, 1991. Mr. Gunia is 47 years old and is currently Chief
Administrative Officer (since July 1990), Director (since January 1989),
Executive Vice President, Treasurer and Chief Financial Officer (since
January 1987) of PMF and 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 (since
January 1989) of PMF 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
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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. Ms. Morrison is 37
years old and is a Vice President and Associate General Counsel (since June
1991) of PMF and Vice President and Associate General Counsel (since
September 1987) of Prudential Securities. 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, as amended on January 22,
1990 (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 June 9, 1993 and was approved by shareholders
on January 11, 1990.
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 of the Fund and other investments. The Prudential
Investment 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:
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(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 .60 of 1% of the first $250
million of the Fund's average daily net assets, .50 of 1% of the next $500
million of the Fund's average daily net assets, .45 of 1% of the next $750
million of the Fund's average daily net assets, .40 of 1% of the next $500
million and .35 of 1% of the excess over $2 billion of the Fund's average
daily net assets. This fee is computed daily and paid monthly. This fee is
proposed to be reduced as set forth in Proposal No. 12, below. PMF agreed
to voluntarily reduce its fee to that set forth in Proposal No. 12
effective October 1, 1993. For the fiscal year ended December 31, 1993, PMF
received a management fee of $18,383,363.
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 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
to 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
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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.
Information about PMF
PMF, an affiliate 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 is the manager for the registered investment
companies set forth below, except as otherwise noted.
Approximate
Open-End Management Net Assets as of
Investment Companies December 31, 1993 Management Fees (annual rate)
- -------------------- ----------------- -----------------------------
(000)
Command Government Fund . $ 360,617 .40 of 1% up to $1 billion
.375 of 1% in excess of $1 billion
Command Money Fund ...... 2,396,738 .50 of 1% up to $500 million
.425 of 1% of the next $500 million
.375 of 1% in excess of $1 billion
.35 of 1% in excess of $1.5 billion
Command Tax-Free Fund ... 760,122 .50 of 1% up to $500 millio
.425 of 1% of the next $500 million
.375 of 1% in excess of $1 billion
Global Utility Fund, Inc. 415,872 .70 of 1% up to $250 million
.55 of 1% of the next $250 million
.50 of 1% of the next $500 million
.45 of 1% in excess of $1 billion
Nicholas-Applegate Fund,
Inc. .................. 350,304 .95 of 1%
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Approximate
Open-End Management Net Assets as of
Investment Companies December 31, 1993 Management Fees (annual rate)
- -------------------- ----------------- -----------------------------
(000)
Prudential California
Municipal Fund
(three series) ........ 764,145 .50 of 1%
Prudential Equity Fund .. 2,027,978 .50 of 1% up to $500 million
.475 of 1% of the next $500 million
.450 of 1% in excess of $1 billion
Prudential Equity
Income Fund ........... 746,732 .60 of 1% up to $500 million
.50 of 1% in excess of $500 million
Prudential FlexiFund
(two series) .......... 812,379 .65 of 1%
Prudential Global Fund, Inc. 360,297 .75 of 1%
Prudential Global
Genesis Fund .......... 143,691 1%
Prudential Global Natural
Resources Fund ........ 51,329 .75 of 1%
Prudential GNMA Fund .... 330,227 .50 of 1%
Prudential Government
Plus Fund ............. 2,378,453 .50 of 1% up to $3 billion
.35 of 1% in excess of $3 billion
Prudential Government
Securities Trust
Intermediate Term
Series .............. 345,781 .40 of 1%
U.S. Teasury Money
Market Series ...... 625,195 .40% of 1%
Money Market Series .. 829,851 .40% of 1% up to $1 billion
.375 of 1% of the next $500 million
.35 of 1% in excess of $1.5 billion
Prudential Growth Fund, Inc. 212,413 .625 of 1% up to $500 million
.550 of 1% of the next $500 million
.500 of 1% in excess of $1 billion
Prudential Growth
Opportunity Fund ...... 502,470 .70 of 1%
11
<PAGE>
Approximate
Open-End Management Net Assets as of
Investment Companies December 31, 1993 Management Fees (annual rate)
- -------------------- ----------------- -----------------------------
(000)
Prudential High Yield Fund 3,914,753 .50 of 1% up to $250 million
.475 of 1% of the next $500 million
.45 of 1% of the next $750 million
.425 of 1% of the next $500 million
.40 of 1% of the next $500 million
.375 of 1% of the next $500 million
.350 of 1% in excess of $3 billion
Prudential IncomeVertible(R)
Fund, Inc. ............ 325,437 .75 of 1% up to $500 million
.70 of 1% of the next $250 million
.65 of 1% of the next $250 million
.60 of 1% in excess of $1 billion
Prudential Institutional
Liquidity Portfolio, Inc. 421,381 .20 of 1%
Prudential MoneyMart
Assets ................ 7,347,874 .50 of 1% up to $50 million
.30 of 1% in excess of $50 million
Prudential Multi-Sector
Fund, Inc. ............ 166,893 .65 of 1%
Prudential Municipal Bond
Fund (three series) ... 2,174,229 .50 of 1%
Prudential Municipal Series
Fund (sixteen series) . 1,739,122 .50 of 1%
Prudential National
Municipals Fund ....... 863,129 .50 of 1% up to $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
.375 of 1% in excess of $1.5 billion
Prudential Pacific Growth
Fund, Inc. ............ 430,274 .75 of 1%
Prudential Short-Term Global
Income Fund Inc.
(two series) .......... 490,926 .55 of 1%
Prudential Special
Money Market Fund ..... 194,290 .50 of 1%
12
<PAGE>
Approximate
Open-End Management Net Assets as of
Investment Companies December 31, 1993 Management Fees (annual rate)
- -------------------- ----------------- -----------------------------
(000)
Prudential Structured
Maturity Fund ......... 242,462 .70 of 1%
Prudential Tax-Free
Money Fund ............ 609,666 .50 of 1% up to $750 million
.475 of 1% of next $750 million
.375 of 1% in excess of $1.5 billion
Prudential U.S. Government
Fund .................. 167,233 .50 of 1%
Prudential Utility Fund . 5,093,475 .60 of 1% up to $250 million
.50 of 1% of the next $500 million
.45 of 1% of the next $750 million
.40 of 1% of the next $500 million
.35 of 1% in excess of $2 billion
The Target Portfolio Trust
Large Capitalization
Growth Portfolio ...... 97,846 .60 of 1%
Large Capitalization
Value Portfolio ....... 95,779 .60 of 1%
Small Capitalization
Growth Portfolio ...... 63,104 .60 of 1%
Small Capitalization
Value Portfolio ....... 64,280 .60 of 1%
International Equity
Portfolio ............. 126,612 .70 of 1%
Total Return Bond
Portfolio ............. 25,989 .45 of 1%
Intermediate Term Bond
Portfolio ............. 60,599 .45 of 1%
Mortgage Backed
Securities Portfolio .. 54,865 .45 of 1%
U.S. Government Money
Market Portfolio ...... 2,980 .25 of 1%
Approximate
Closed-End Management Net Assets as of
Investment Companies December 31, 1993 Management Fees (annual rate)
- --------------------- ----------------- -----------------------------
(000)
The Global Government
Plus Fund, Inc. ....... 357,876 .75% of 1% up to $1 billion
.70 of 1% in excess of $1 billion
13
<PAGE>
Approximate
Closed-End Management Net Assets as of
Investment Companies December 31, 1993 Management Fees (annual rate)
- --------------------- ----------------- -----------------------------
(000)
The Global Yield Fund, 580,083 .75 of 1% up to $500 million
Inc. ................... .70 of 1% of the next $500 million
.65 of 1% in excess of $1 billion
The High Yield Income
Fund, Inc. ............. 85,697 .70 of 1%
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.
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.
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
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 President Senior Vice President,
PMF; Senior Vice
President, Prudential
Securities
Fred A. Fiandaca ........ Executive Vice Executive Vice President,
Raritan Plaza One President, Chief Chief Operating Officer
Edison, NJ 08847 Operating Officer and Director, PMF;
and Director Chairman, Chief Oper-
ating Officer and
Director, Prudential
Mutual Fund Services,
Inc.
Stephen P. Fisher ....... Senior Vice President Senior Vice
President,
PMF; Senior Vice Presi-
dent, Prudential
Securities
14
<PAGE>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
Frank W. Giordano ....... Executive Vice Executive Vice President,
President, General General Counsel and
Counsel and Secretary, PMF; Senior
Secretary Vice President, Pruden-
tial Securities
Robert F. Gunia ......... Executive Vice Executive Vice President,
President, Chief Chief Financial and
Financial and Administrative Officer,
Administrative Treasurer and Director,
Officer, Treasurer PMF; Senior Vice Presi-
and Director dent, Prudential Securities
Eugene B. Heimberg ...... Director Senior Vice President,
Prudential Plaza Prudential
Newark, NJ 07102
Lawrence C. McQuade ..... Vice Chairman Vice Chairman, PMF
Leland B. Paton ......... Director Executive Vice President
and Director, Prudential
Securities; Director,
PSG
Richard A. Redeker ...... President, President, Chief Executive
Chief Executive Officer and Director,
Officer and Director PMF; Executive Vice
President, Director and
Member of the
Operating Committee,
Prudential Securities;
Director, PSG
S. Jane Rose ............ Senior Vice President, Senior Vice President,
Senior Counsel and Senior Counsel and
Assistant Secretary Assistant Secretary,
PMF; Senior Vice
President and Senior
Counsel, Prudential
Securities
Donald G. Southwell ..... Director Senior Vice President,
213 Washington Street Prudential; Director,
Newark, NJ 07102 PSG
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 Agree-
15
<PAGE>
ment was approved by shareholders on April 29, 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 June 9, 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.
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.
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
Martin A. Berkowitz ..... Senior Vice President, Senior Vice President,
Chief Financial Chief Financial and
and Compliance Compliance Officer,
Officer PIC; Vice President,
Prudential
William M. Bethke ....... Senior Vice President Senior Vice President,
Two Gateway Center Prudential
Newark, NJ 07102
16
<PAGE>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
John D. Brookmeyer, Jr. . Senior Vice President Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
Eugene B. Heimberg ...... President and Senior Vice President,
Director Prudential
Garnett L. Keith, Jr. ... Director Vice Chairman and
Director, Prudential
William P. Link ......... Executive Vice Executive Vice President,
Four Gateway Center President Prudential
Newark, NJ 07102
Robert E. Riley ......... Executive Vice Executive Vice President,
800 Boylston Avenue President Prudential; Director,
Boston, MA 02199 PSG
James W. Stevens ........ Executive Vice Executive Vice President,
Four Gateway Center President Prudential; Director,
Newark, NJ 07102 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 Vice President, Prudential
President
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 June 9, 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.
17
<PAGE>
The Plans are proposed to be amended as set forth in Proposals No. 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 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 .25 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
$537,660 under the Class A Plan representing .20 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 $5,755,000 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 .75 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 1% of average daily net assets of the Class B shares.
For the fiscal year ended December 31, 1993, Prudential Securities
received $43,080,963 from the Fund under the Class B Plan and spent
approximately $60,566,900 in distributing the Fund's Class B shares. It is
estimated that of the latter amount approximately .4% ($250,700) was spent
on printing and mailing of prospectuses to other than current shareholders;
34.1% ($20,622,100) on compensation to 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; 2.2% ($1,330,500) in interest and/or carrying
charges and 63.3% ($38,363,600) on the aggregate of (i) payments of
commissions to financial advisers of 32.4% ($19,652,700) and (ii) an
allocation of overhead and other branch office distribution-related
expenses of 30.9% ($18,710,900). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating
Prudential Securities branch offices in connection with the sale of Fund
shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs
and the costs of stationery and supplies, (b) the costs of client sales
seminars, (c) travel 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
18
<PAGE>
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 $4,330,000 in contingent deferred sales charges. As
of December 31, 1993, the aggregate amount of unreimbursed distribution
expenses for the Fund's Class B shares was approximately $43,948,600.
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.
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 June 9, 1993.
Pending Legal Proceedings
On October 12, 1993, a lawsuit was instituted against the Fund, PMF,
The Prudential Investment Corporation, Prudential Securities, and certain
current and former directors of the Fund. The suit was brought by
plaintiffs both derivatively on behalf of the Fund and purportedly on
behalf of the class of shareholders who purchased their shares prior to
1985. The plaintiffs seek damages on behalf of the Fund in an unspecified
amount for alleged excessive management and distribution fees. The
complaint also challenges the Alternative Purchase Plan that was
implemented in January 1990 pursuant to a shareholder vote and that
provided for the creation of two classes of shares. The plaintiffs, on
behalf of the purported class, seek damages and equitable relief against
the Fund and the named directors to change the classification of the shares
of the class and to compel a further vote on such plan. The defendants
believe they have meritorious defenses to the
19
<PAGE>
claims asserted in the complaint and intend to defend this action
vigorously. Management does not believe that the outcome of this action is
likely to have a material adverse effect on the Fund.
Portfolio Transactions
The Manager is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions
and the negotiation of brokerage commissions, if any. For purposes of this
section, the term "Manager" includes the Subadviser. Purchases and sales
of securities on a national securities exchange are effected through
brokers who charge a commission for their services. Orders may be directed
to any broker including, to the extent and in the manner permitted by
applicable law, Prudential Securities.
In the over-the-counter market, 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. On occasion, certain money market instruments may be purchased
directly from an issuer, in which case no commissions or discounts are
paid. The Fund will not deal with Prudential Securities (or any affiliate)
in any transaction in which Prudential Securities acts as principal. Thus,
it will not deal in over-the-counter securities with Prudential Securities
(or any affiliate) acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves
Prudential Securities acting as principal with respect to any part of the
Fund's order.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable
price and efficient execution. This means that the Manager will seek to
execute each transaction at a price and commission, if any, which provides
the most favorable total cost or proceeds reasonably attainable in the
circumstances. While the Manager generally seeks reasonably competitive
spreads or commissions, the Fund will not necessarily be paying the lowest
spread or commission available. Within the framework of the policy of
obtaining most favorable price and efficient execution, the Manager will
consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of the Fund, the
Manager or the Manager's other clients. Such research and investment
services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are
used by the Manager in connection with all of its investment activities,
and some of such services obtained in connection with the execution of
transactions for the Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for
the execution of transactions of such other accounts, whose aggregage
assets are far larger than the Fund, and the services furnished by such
brokers may be used by the Manager in providing investment management for
the Fund. Commission rates are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided
by the broker in the light of
20
<PAGE>
generally prevailing rates. The Manager's policy is to pay higher
commissions to brokers, other than Prudential Securities, for particular
transactions than might be charged if a different broker had been
selected, on occasions when, in the Manager's opinion, this policy
furthers the objective of obtaining best price and execution. The Manager
is authorized to pay higher commissions on brokerage transactions for the
Fund to brokers or dealers other than Prudential Securities in order to
secure research and investment services as described above, subject to
review by the Fund's Board of Directors from time to time as to the extent
and continuation of this practice. The allocation of orders among brokers
and the commission rates paid are reviewed periodically by the Fund's
Board of Directors.
Portfolio securities may not be purchased from any underwriting or
selling syndicate of which Prudential Securities (or any affiliate), during
the existence of the syndicate, is a principal underwriter (as defined in
the Investment 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, the Manager may use Prudential
Securities or any affiliate as a broker for the Fund. In order for
Prudential Securities or any affiliate to effect any portfolio transactions
for the Fund, the commissions, fees 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 a securities exchange during a comparable period of
time. This standard would allow Prudential Securities or any affiliate to
receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Board of Directors of the Fund, including a
majority of the 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) of the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange
for the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least
annually a statement setting forth the total amount of all compensation
retained by Prudential Securities from transactions effected for the Fund
during the applicable period. Brokerage transactions with Prudential
Securities or any affiliate are also subject to such fiduciary standards as
may be imposed upon Prudential Securities or such affiliate by applicable
law.
Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options are written
or held on the same or different exchanges or are written or held in one or
more accounts or through one or more brokers. Thus, the number of options
which the Fund may write or hold may be affected by options written or held
by Prudential and other
21
<PAGE>
investment advisory clients of Prudential. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions. As of the date of this Proxy Statement,
these limits (which are subject to change) are 8,000 options on the most
actively traded stocks (i.e., (i) stocks that had trading volume of at
least 40 million shares in the prior six-month period or (ii) stocks that
have at least 120 million shares outstanding and also had trading volume of
at least 30 million shares in the prior six-month period) and 5,500 options
on stocks that had a trading volume of at least 20 million shares in the
prior six-month period or stocks that have at least 40 million shares
outstanding and a trading volume of at least 15 million shares in the prior
six-month period. All other stock options will have a 3,000-contract limit.
Option contracts on an industry index are limited to between 15,000 and
25,000 contracts.
The table below sets forth information concerning the payments of
commissions by the Fund to Prudential Securities, including the commissions
during the fiscal year ended December 31, 1993.
Year ended
December 31, 1993
Total brokerage commissions paid by the Fund .................. $4,408,907
Total brokerage commissions paid to Prudential Securities or
any affiliate ............................................... $ 366,575
Percentage of total brokerage commissions paid to Prudential
Securities or any affiliate ................................. 8.3%
The Fund effected approximately 8.5% of the total dollar amount of its
transactions involving the payment of commissions through Prudential
Securities or its affiliates during the fiscal year ended December 31,
1993. Of the total brokerage commissions paid during the fiscal year ended
December 31, 1993, $2,497,051 (or 75.33%) were paid to firms which provided
research, statistical or other services to PMF. PMF has not separately
identified the portion of such brokerage commissions which relates to the
provision of such research, statistical or other services.
APPROVAL OF A PROPOSAL TO AMEND
THE FUND'S ARTICLES OF INCORPORATION
TO PERMIT THE IMPLEMENTATION OF A CONVERSION FEATURE
(For consideration of 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 Securities and
Exchange Commission (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
22
<PAGE>
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 5.25% 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 .25 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 ended 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 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 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 March 17, 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 the purchase of Class B shares. 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 deter-
23
<PAGE>
mined 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 such 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 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 purchases of such Class
B shares was made. For Class B shares previously exchanged for shares of a
money market fund, the time period during which such shares were held in
the money market fund will be excluded. For example, Class B shares held in
a money market fund for 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.
24
<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 June 9, 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), 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.
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 June 9, 1993 (the Existing Class
A Plan). Shareholders of the Fund's Class A and Class B
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<PAGE>
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 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
Directors who are not interested persons of the Fund 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
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<PAGE>
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, 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 $170,635,
$298,849, and $573,660, respectively under the Existing Class A Plan,
representing .20 of 1% of the average daily net assets of the Class A
shares, as reimbursement of expenses incurred for Distribution Activities.
Although PMFD agreed to limit its fees under the Existing Class A Plan to
.25 of 1% for the fiscal years ended, December 31, 1991, 1992 and 1993, it
in fact further limited its fee to .20 of 1% 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 .25 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
27
<PAGE>
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
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 voting 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 June 9, 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
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
28
<PAGE>
by shareholders on January 11, 1990 and last approved by the Board of
Directors on June 9, 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 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 .75 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). 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."
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<PAGE>
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 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 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 $43,949,000.
For the fiscal years ended December 31, 1991, 1992 and 1993, Prudential
Securities received $25,285,227, $30,274,092 and $43,080,963, respectively,
from the Fund under the Existing Class B Plan, representing 1% of the
average daily net assets of the Class B shares, and spent approximately
$16,760,300, $31,572,000 and $60,566,900, 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 ordinarily would not be an
issue. Currently, because the Existing Class B Plan is a reimbursement
plan, the Distributor retains an expert to perform a study of its
methodology for determining and substantiating which of its expenses should
properly be allocated to the Fund's Class B shares for reimbursement,
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<PAGE>
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 under the 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 Directors,
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 described under Proposal No. 3 above. If the Proposed Class B Plan is
not approved, the Existing Class B Plan will continue in its present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 4.
APPROVAL OF MODIFICATION OF THE FUND'S
INVESTMENT OBJECTIVE
(Proposal No. 5)
On March 17, 1993, at the request of the Fund's Subadviser, the Board of
Directors of the Fund considered and recommends for shareholder approval a
modification of the Fund's investment objective. The Fund's current
investment objective is to seek "high current income and moderate capital
appreciation through investment in equity and debt securities of utility
companies, principally electric, gas and telephone companies." The
Subadviser would like to expand the types of utility companies in which the
Fund may invest. Accordingly, it is proposed that the Fund's investment
objective be restated as follows:
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The Fund's investment objective is to seek high current income and
moderate capital appreciation through investment in equity and debt
securities of utility companies. [principally electric, gas and
telephone companies.]*
The Prospectus would continue as follows:
"Utility companies" include electric, gas, gas pipeline, telephone,
telecommunications, water and cable companies. In normal circumstances,
the Fund intends to invest at least 80% of its assets in such
securities. There can be no assurance that such objective will be
achieved. It is anticipated that the Fund will invest primarily in
[utility] common stocks of utility companies that the Subadviser
believes have the potential for high expected return; however, the Fund
may invest primarily in [utility] preferred stocks and debt securities
of utility companies when it appears that the Fund will be better able
to achieve its investment objective through investments in such
securities, or when the Fund is temporarily in a defensive position.
Moreover, should extraordinary conditions affecting [the utility] such
sectors or securities markets as a whole warrant, the Fund may
temporarily be primarily invested in money market instruments.*
*[Deletions are in brackets.] Additions are underlined.
Thus, the reference to "principally electric, gas and telephone
companies" would be deleted and "utility companies" would be defined to
include gas pipeline, telecommunications, water and cable companies in
addition to electric, gas and telephone companies. The Board of Directors
believes that this modification is in the best interests of the Fund and
its shareholders. Adoption of Proposal No. 5 would enable the Board of
Directors to expand the universe of securities of utility companies in
which the Fund may invest.
The Board of Directors' ability to define "utility company" gives the
Fund greater flexibility to respond appropriately to business,
technological and legal and regulatory developments affecting utility
companies and to new industries whose nature or growth has many
characteristics of more traditional utility companies. When the Board of
Directors deems such changes to be material, existing shareholders will
ordinarily be notified of the changes by means of a supplement to the
Prospectus.
Required Vote
This modification to the investment objective of the Fund must be
approved by a majority of the outstanding voting securities of the Fund.
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
modification to the Fund's investment objective is not approved, the
current investment objective would remain unchanged.
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<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 5.
APPROVAL OF ELIMINATION OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS REGARDING RESTRICTED
AND ILLIQUID SECURITIES
(Proposal No. 6)
On March 17, 1993, at the request of the Fund's Manager and Subadviser,
the Board of Directors considered and recommends for shareholder approval
revision of the Fund's fundamental investment restrictions regarding
illiquid and restricted securities. The current restriction is overly
confining in light of the development of an active market in those
securities that, although subject to restrictions on resale, are
transferable under SEC Rule 144A. The Board of Directors recommends
elimination of the Fund's Investment Restriction No. 11, which limits the
purchase of any security that is restricted as to disposition under federal
securities laws. Further, the Board recommends modification of Investment
Restrictions Nos. 6 and 14 to eliminate restrictions on investments in
equity securities for which market quotations are not readily available and
repurchase agreements with maturities of longer than 7 days and other
illiquid assets. The text of Restrictions Nos. 6, 11 and 14 and the
proposed amendments are set forth in Exhibit E.
The Board recommends replacement of such fundamental investment
restrictions with a non-fundamental investment policy that could be
modified by the vote of the Board of Directors in response to regulatory or
market developments without further approval by shareholders. The change
would expand the Fund's ability to invest in securities which have
restrictions on resale but have a readily available institutional market,
such as securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the Securities Act). The proposed non-fundamental
policy would provide as follows:
The Fund may invest up to 10% of its net assets in illiquid
securities; including repurchase agreements which have a maturity
of longer than seven days, securities with legal or contractual
restrictions on resale (restricted securities) and securites that
are not readily marketable. Restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the Securities Act), that have a readily available market
are not considered illiquid for purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.
An open-end investment company may not hold a significant amount of
restricted securities or illiquid securities because such securities may
present problems of accurate valuation and because it is possible that the
investment company would have difficulty satisfying redemptions within
seven days. The proposed investment policy is not expected by the
investment adviser or the Board of Directors to affect the Fund's liquidity
because it
33
<PAGE>
excludes from illiquid securities only those Rule 144A securities for
which there is a readily available market.
Historically, illiquid securities have been defined to include
securities subject to contractual or legal restrictions on resale,
securities for which there is no readily available market and repurchase
agreements having a maturity of longer than seven days. In recent years,
however, the securities markets have evolved significantly, with the result
that new types of instruments have developed which make the Fund's present
restriction on illiquid investments overly broad and unnecessarily
restrictive in the view of the Fund's Manager. In particular, the SEC
adopted Rule 144A in April 1990, which allows for a broader institutional
trading market for securities otherwise subject to restrictions on resale
to the general public. SEC interpretations give directors of registered
investment companies the discretion to designate restricted securities as
liquid if the presence of a readily available market can be demonstrated
and if a current market value can be ascertained. In adopting Rule 144A,
the SEC recognized the increased size and liquidity of the institutional
markets for unregistered securities and the importance of institutional
investors in the capital formation process. In 1992, the SEC staff issued
amended guidelines to the effect that up to 15% (as opposed to 10%) of an
open-end fund's net assets may be invested in illiquid securities,
including repurchase agreements with a maturity of longer than seven days.
The guidelines were amended in connection with the SEC's efforts to remove
unnecessary barriers to capital formation and to facilitate access to the
capital markets by small businesses.
The staff of the SEC has also taken the position that purchased over-
the-counter options and the assets used as "cover" for written over-the-
counter options are illiquid securities unless the Fund and the
counterparty have provided for the Fund at its option to unwind the over-
the-counter option. The exercise of such an option ordinarily would involve
the payment by the Fund of an amount designed to reflect the counterparty's
economic loss from an early termination, but does allow the Fund to treat
the assets used as "cover" as "liquid."
The proposed change would expand the Fund's ability to invest in the
securities of foreign previously-government-owned utility companies
eligible for resale pursuant to Rule 144A, among others, which generally
have a readily available institutional market, and would permit the Fund to
invest up to 10% of its net assets in illiquid assets. The markets for
certain equity securities, corporate bonds and notes are almost exclusively
institutional. These institutional investors depend on an efficient
institutional market in which the unregistered security can be readily
resold. In the opinion of the Fund's Manager, the fact that there are
restrictions on resale to the general public is therefore not necessarily
indicative of the liquidity of such investments. If designated as liquid
(under the supervision of the Board of Directors), these Rule 144A
securities would be exempt from the 10% limitation.
In order to take advantage of the market for Rule 144A securities and
the increasingly liquid institutional trading markets, the Manager
recommends that the Fund eliminate its fundamental policies regarding
illiquid and restricted securities so that Rule 144A securities that are
nonetheless liquid may be purchased without regard to the current
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limitations. By making the Fund's policy on illiquid securities
non-fundamental, the Fund will be able to respond more quickly to
regulatory and market developments because a shareholder vote will not be
required to define what types of securities should be deemed illiquid or to
change the applicable permissible percentage limitation. If this proposal
is approved by shareholders, the Manager and the Subadviser, under the
supervision of the Board of Directors, will monitor the liquidity of
specific types of securities and, based on their recommendations, the Board
of Directors will from time to time determine whether such securities
should be deemed to be liquid with reference to legal, regulatory and
market developments.
In reaching liquidity decisions, the Manager and the Subadviser will
consider, inter alia, the following factors:
1. the frequency of trades and quotes for the security;
2. the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers;
3. dealer undertakings to make a market in the security; and
4. the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
The Board of Directors believes that adoption of Proposal No. 6 is in
the best interests of the Fund and its shareholders.
Required Vote
Adoption of Proposal No. 6 requires the affirmative vote of the holders
of a majority of the outstanding voting securities of the Fund as defined
in the Investment Company Act and described under Proposal No. 5 above. 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 RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 6.
APPROVAL OF AN AMENDMENT OF THE FUND'S INVESTMENT
POLICIES AND RESTRICTIONS TO PERMIT CERTAIN HEDGING AND
INCOME ENHANCEMENT STRATEGIES USING OVER-THE-COUNTER
OPTIONS, STOCK INDEX OPTIONS AND FINANCIAL AND FOREIGN
CURRENCY FUTURES CONTRACTS AND OPTIONS THEREON
(Proposals No. 7 and 8)
At a meeting held on March 17, 1993, the Board of Directors of the Fund
approved amendments to Investment Restrictions No. 2, 4 and 8 which, if
approved by shareholders, would expand the Fund's hedging and income
enhancement strategies to allow the Fund to
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buy and sell over-the-counter options, financial and foreign currency
futures contracts and options thereon. The Fund would also be permitted to
purchase stock index options on securities of non-utility companies in
addition to its existing ability to invest in stock index options of
securities of utility companies. Currently, the Fund is permitted to
purchase and write (i.e., sell) put and call options on listed utility and
non-utility stocks and on listed stock indices relating to the utility
industry or segments thereof. The proposed amendment will permit the Fund
to buy and sell put and call options on equity and debt securities and on
financial indices in the over-the- counter market, to purchase and sell
financial futures contracts and options thereon and to purchase options on
non-utility stock indices.
The Fund's transactions in options and futures as discussed below would
be for hedging and income enhancement purposes only. The Board of Directors
believes that the ability to enter into these transactions will benefit the
Fund and recommends that shareholders of the Fund approve the amendments.
It is not currently expected that the Fund will significantly restructure
its portfolio if the proposal is adopted. A copy of the Fund's Investment
Restrictions, marked to show proposed changes, is attached as Exhibit E.
Set forth below is a discussion of (1) the current options and futures
strategies used by the Fund and (2) the proposed use of over-the-counter
options, stock index options on non-utility stocks and financial and
foreign currency futures contracts and options thereon.
Current Options Strategies
Options on Stocks. The Fund already has the ability to purchase and
write (i.e., sell) put and call options on stocks and stock indices on a
national securities exchange (exchange-traded). A call option is a
short-term contract pursuant to which the purchaser, in return for a
premium paid, has the right to buy the security underlying the option at a
specified exercise price at any time during the term of the option. The
writer of the call option, who receives the premium, has the obligation,
upon exercise of the option, to deliver the underlying security against
payment of the exercise price. A put option is a similar contract which
gives the purchaser, in return for a premium paid, the right to sell the
underlying security at a specified price during the term of the option.
A call option written by the Fund is "covered" if the Fund owns the
security underlying the option or has an absolute and immediate right to
acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its
Custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds on a share-for-
share basis a call on the same security as the call written where the
exercise price of the call held is equal to or less than the exercise price
of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, Treasury bills or
other liquid, high grade debt obligations in a segregated account with its
Custodian. In accordance with its existing practices, the Fund will write
covered call options to enhance income.
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To secure the obligation to deliver the underlying security in the case
of an exchange-traded call option, the writer of the exchange-traded option
is generally required to pledge for the benefit of the broker the
underlying security or other assets in accordance with the rules of the
relevant exchange or clearinghouse, such as The Options Clearing
Corporation (OCC), an institution created to interpose itself between
buyers and sellers of exchange-traded options in the United States.
Technically, the clearinghouse assumes the other side of every purchase and
sale transaction on an exchange and, by doing so, guarantees the
transaction.
If the writer of an exchange-traded option wishes to terminate the
obligation to purchase or deliver a security, as the case may be, he or she
may effect a "closing purchase transaction." This is accomplished by buying
an exchange-traded option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the clearing corporation. However, a writer may not effect a
closing purchase transaction after he or she has been notified of the
exercise of an exchange-traded option. Similarly, an investor who is the
holder of an exchange-traded option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by writing
(selling) an exchange-traded option of the same series as the option
previously purchased. There is no guarantee that either a closing purchase
or a closing sale transaction can be effected.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the
exchange-traded option in the case of a closing purchase transaction or is
more than the premium paid to purchase the exchange-traded option in the
case of a closing sale transaction. The Fund will realize a loss from a
closing transaction if the price of the transaction is more than the
premium received from writing the exchange-traded option in the case of a
closing purchase transaction or is less than the premium paid to purchase
the exchange-traded option in the case of a closing sale transaction.
Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in
whole or in part by the appreciation of the underlying security if such
security is owned by the Fund.
Options on Stock Indices. In addition to options on stocks, the Fund
may also purchase and write options on stock indices relating to the
utility industry and segments thereof. A stock index, such as the S&P 500,
is a measure of the value of a group of stocks at a given point in time.
Options on stock indices are similar to options on stocks except an option
on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon
which the option is based is greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. This amount
of cash is equal to the difference between the closing price of the index
and the exercise price of the option expressed in dollars times a specified
multiple (the multiplier). The writer of the option is obligated, in return
for the premium received, to make delivery of this amount. Unlike stock
options, all settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual stocks. As
with an exchange
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traded equity option, a clearing corporation assumes the other side of
every purchase or sale transaction of an exchange-traded index option.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value
per contract of each point in the difference between the exercise price of
an option and the current level of the underlying index. A multiplier of
100 means that a one-point difference will yield $100. Options on different
indices may have different multipliers. Because exercises of index options
are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
stocks, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. In
addition, unless the Fund has other liquid assets which are sufficient to
satisfy the exercise of a call, the Fund would be required to liquidate
portfolio securities or borrow in order to satisfy the exercise.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss on the purchase or sale of an option on an
index depends upon movements in the level of stock prices in the stock
market generally or in an industry or market segment rather than movements
in the price of a particular stock. Accordingly, successful use by the Fund
of options on indices is subject to the investment adviser's ability to
predict correctly movements in the direction of the stock market generally
or of a particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks. Certain
additional risks are described below under "Risks of Options on Indices."
Risks of Hedging and Income Enhancement Strategies
If the investment adviser's predictions of movements in the direction
of the securities and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. Risks inherent in the use of these
strategies include (1) dependence on the investment adviser's ability to
predict correctly movements in the direction of interest rates, securities
prices and markets; (2) imperfect correlation between the price of options
and futures contracts and options thereon and movements in the prices of
the securities being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities;
(4) the possible absence of a liquid secondary market for any particular
instrument at any time; (5) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time
that otherwise would be favorable for it to do so, or the possible need for
the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions.
Risks of Transactions in Exchange-Traded Options
An exchange-traded option position may be closed out only on an
exchange, board of trade or other trading facility which provides a
secondary market for an option of the same
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series. Although the Fund will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange
will exist for any particular exchange-traded option, or at any particular
time, and for some options no secondary market on an exchange or otherwise
may exist. In such event it might not be possible to effect closing
transactions in particular exchange-traded options, with the result that
the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and
upon the subsequent disposition of underlying securities acquired through
the exercise of call options or upon the purchase of underlying securities
for the exercise of put options. If the Fund as a covered call
exchange-traded option writer is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange;
(v) the facilities of an exchange or a clearing corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a
clearing corporation as a result of trades on that exchange would continue
to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events
might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by
an exchange of special procedures which may interfere with the timely
execution of customers' orders. The Fund purchases and sells only those
exchange-traded options which are cleared by clearing corporations whose
facilities are considered to be adequate to handle the volume of options
transactions.
Proposed Over-the-Counter (OTC) Options
Adoption of Proposals No. 7 and 8 will permit the Fund to purchase and
sell put and call options on equity and debt securities and on financial
indices in the over-the-counter market. Unlike exchange-traded options,
OTC options are issued in privately negotiated transactions exempt from
registration under the Securities Act. The exercise of an option occurs
directly by notice from the holder in the case of an OTC option as opposed
to assignment of an exercise notice by the broker-dealer through whom the
option was purchased or sold in the case of an exchange-traded option.
Effecting closing purchase transactions in OTC options is subject to
negotiation between the Fund and the holder of the option.
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<PAGE>
In the case of OTC options, it is not possible to effect a closing
transaction in the same manner as exchange-traded options because a
clearing corporation is not interposed between the buyer and seller of the
option. In order to terminate the obligation represented by an OTC option,
the Fund would need to agree to the termination of the obligation
represented by such OTC option with the counterparty thereto. Any such
cancellation, if agreed to, may require the Fund to pay a premium to the
counterparty. Alternatively, the Fund could write an OTC put option to in
effect close its position on an OTC call option or write a call option to
close its position on an OTC put option. However, the Fund would remain
exposed to each counterparty's credit risk on the call or put option until
such option is exercised or expires. There is no guarantee that the Fund
will be able to write put or call options, as the case may be, that will
effectively close an existing position.
The Fund may also purchase a "protective put," i.e., a put option
acquired over-the-counter for the purpose of protecting a portfolio
security from a decline in market value. In exchange for the premium paid
for the put option, the Fund acquires the right to sell the underlying
security at the exercise price of the put regardless of the extent to which
the underlying security declines in value. The loss to the Fund is limited
to the premium paid for, and transaction costs in connection with, the put
plus the initial excess, if any, of the market price of the underlying
security over the exercise price. However, if the market price of the
security underlying the put rises, the profit the Fund realizes on the sale
of the security will be reduced by the premium paid for the put option less
any amount (net of transaction costs) for which the put may be sold.
Similar principles apply to the purchase of puts on stock indices in the
over-the-counter market.
As discussed above, an OTC option is a direct contractual relationship
with another party. Consequently, in entering into OTC options, the Fund
will be exposed to the risk that the counterparty will default on, or be
unable to complete, due to bankruptcy or otherwise, its obligation on the
option. In such an event, the Fund may lose the benefit of the transaction.
Consequently, the value of an OTC option to the Fund is dependent upon the
financial viability of the counterparty. If the Fund decides to enter into
transactions in OTC options, PIC will take into account the credit quality
of counterparties in order to limit the risk of default by the
counterparty.
OTC options may also be illiquid securities with respect to which no
secondary market exists. The Fund may not be able to effect closing
transactions for such options. The staff of the SEC has taken the position
that purchased OTC options and the assets used as "cover" for written OTC
options are illiquid securities unless the Fund and the counterparty have
provided for the Fund at its option to unwind the over-the-counter option.
The exercise of such an option ordinarily would involve the payment by the
Fund of an amount designed to reflect the counterparty's economic loss
from an early termination, but does allow the Fund to treat the assets
used as "cover" as "liquid."
Proposed Non-Utility Stock Index Options.
Adoption of Proposals No. 7 and 8 will permit the Fund to purchase
stock index options on securities of non-utility companies in addition to
its existing ability to invest in stock index options of securities of
utility companies. The proposal would increase the Fund's ability to invest
in a broader range of options.
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Proposed Listed Stock and Bond Index Futures and Options Thereon.
Adoption of Proposals No. 7 and 8 also will permit the Fund to purchase
and sell listed stock and bond index futures contracts and options thereon,
which would allow the Fund to attempt to reduce the risk of investment in
equity and debt securities by hedging a portion of its portfolio or
securities that it intends to purchase through the use of listed stock and
bond index futures and options on stock and bond index futures. A stock or
bond index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock or bond index at
the close of the last trading day of the contract and the price at which
the agreement is made. No physical delivery of the underlying stocks or
bonds in the index is made. When the futures contract is entered into, each
party deposits with a futures commission merchant or in a segregated
custodial account approximately 5% of the contract amount, called "initial
margin." Subsequent payments to the futures commission merchant, called
"maintenance" or "variation margin," may have to be made as the price of
the underlying stock or bond index fluctuates, making the long and short
positions in the futures contract more or less valuable. The value of the
futures contracts and the amount of the variation margin which must be paid
is calculated on a daily basis in a process known as "marking to market."
Pursuant to the requirements of the Commodity Exchange Act, as amended
(the Commodity Exchange Act), all futures contracts and options thereon
must be traded on an exchange. Therefore, as with exchange-traded options,
a clearing corporation is technically the counterparty on every futures
contract and option thereon.
In the case of options on stock or bond index futures, the holder of
the option pays a premium and receives the right, upon exercise of the
option at a specified price during the option period, to assume a position
in a stock or bond index futures contract (a long position if the option is
a call and a short position if the option is a put). If the option is
exercised by the holder before the last trading day during the option
period, the option writer delivers the futures position, as well as any
balance in the writer's futures margin account, which represents the amount
by which the market price of the stock or bond index futures contract at
exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the stock or bond index future. If
it is exercised on the last trading day, the option writer delivers to the
option holder cash in an amount equal to the difference between the option
exercise price and the closing level of the relevant index on the date the
option expires.
Under regulations of the Commodity Exchange Act, an investment company
registered under the Investment Company Act is excluded from the definition
of "commodity pool operator," subject to compliance with certain
conditions. The exemption is conditioned upon a requirement that the Fund's
futures or options transactions constitute bona fide hedging transactions
within the meaning of the regulations of the Commodity Futures Trading
Commission (CFTC). The Fund may also enter into futures contracts or
options thereon for risk management and income enhancement purposes if the
aggregate initial margin for such contracts and premiums paid for such
options does not exceed 5% of the liquidation value of the Fund's total
assets. The Fund will use futures and options on futures in a manner
consistent with these requirements.
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Risks of Options on Indices
The distinctive characteristics of options on indices create certain
risks that are not present with stock options. Index prices may be
distorted if trading of certain stocks or bonds included in the relevant
index is interrupted. Trading in the index options and futures also may be
interrupted in certain circumstances, such as if trading were halted in a
substantial number of stocks or bonds included in the relevant index. If
this occurred, the Fund would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, may be
unable to exercise an option it holds, which could result in substantial
losses to the Fund. It is the Fund's policy to purchase or write options
only on indices which include a number of stocks or bonds sufficient to
minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop in all index option
contracts. The Fund will not purchase or sell any index option contract
unless and until, in the investment adviser's opinion, the market for such
options has developed sufficiently.
Futures Contracts on Foreign Currencies and
Options On Futures Contracts on Foreign Currencies
The Fund would be permitted to buy and sell futures contracts on
foreign currencies and groups of foreign currencies (futures contracts)
such as the European Currency Unit, and options thereon solely for hedging
purposes. A European Currency Unit is a basket of specified amounts of the
currencies of certain member states of the European Economic Community, a
Western European economic cooperative organization including, inter alia,
France, Germany, The Netherlands and the United Kingdom. The Fund will
engage in transactions in only those futures contracts and options thereon
that are traded on a commodities exchange or a board of trade. A "sale" of
a futures contract means the assumption of a contractual obligation to
deliver the specified amount of foreign currency at a specified price in a
specified future month. A "purchase" of a futures contract means the
assumption of a contractual obligation to acquire the currency called for
by the contract at a specified price in a specified future month. At the
time a futures contract is purchased or sold, the Fund must allocate cash
or securities as a deposit payment (initial margin). Thereafter, the
futures contract is valued daily and the payment of "variation margin" may
be required, resulting in the Fund's paying or receiving cash that reflects
any decline or increase, respectively, in the contract's value, a process
known as "marking to market."
The Fund intends to engage in futures contracts on foreign currencies
and options on these futures contracts as a hedge against changes in the
value of the currencies to which the Fund is subject or to which the Fund
expects to be subject in connection with future purchases, in accordance
with the rules and regulations of the CFTC. The Fund also intends to engage
in such transactions when they are economically appropriate for the
reduction of risks inherent in the ongoing management of the Fund. Such
transactions will be entered into under the same types of circumstances,
and for the same purposes, as
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transactions in forward foreign currency exchange contracts and options on
foreign currencies discussed below.
Risks of Transactions in Financial and Foreign Currency Futures
Contracts and Options Thereon
The risks noted above under "Risks of Transactions in Exchange-Traded
Options" also apply to transactions in stock or bond index futures
contracts and financial and foreign currency futures contracts and options
thereon. In addition, the use of stock or bond index futures contracts and
financial and foreign currency futures contracts and options thereon as
hedging devices presents other potential risks. The correlation between the
price of the futures contract and the movements in the index or currency
may not be perfect. Therefore, a correct forecast of currency rates, market
trends or international political trends by the investment adviser may
still not result in a successful hedging transaction.
Futures prices often are extremely volatile, so successful use of
financial futures contracts and options thereon by the Fund is also subject
to the ability of the Fund's investment adviser to predict correctly
movements in the direction of markets, changes in supply and demand,
interest rates, exchange rates, international political and economic
policies, and other factors affecting the stock and bond markets generally.
For example, if the Fund has hedged against the possibility of a decrease
in an index which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, then the Fund
will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash to meet
daily variation margin requirements, it may need to sell securities to meet
such requirements at a time when it is disadvantageous to do so. Such sales
of securities may be, but will not necessarily be, at increased prices
which reflect the rising market.
The hours of trading of financial futures contracts and options thereon
may not conform to the hours during which the Fund may trade the underlying
securities. To the extent the futures markets close before the securities
markets, significant price and rate movements can take place in the
securities markets that cannot be reflected in the futures markets.
Futures contracts and options on futures on foreign currencies will be
used to hedge against the risks of adverse movements in currency exchange
rates associated with investments in foreign securities, in the same manner
as the Fund's proposed use of forward foreign currency exchange contracts
and options on foreign currencies, discussed below. Such transactions will
not protect the Fund against adverse fluctuations in the value of foreign
securities in the currencies in which such securities are denominated. In
addition, if the investment adviser's predictions of movements in the
relevant currency markets are incorrect, the Fund could sustain losses on
such hedging transactions.
Futures contracts and options thereon are highly leveraged and the
specific market movements of the underlying instrument or contract cannot
be predicted. Futures and options on futures must be bought and sold on
exchanges. Although the exchanges
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provide a means of closing out a position previously established, there
can be no assurance that a liquid market will exist for a particular
contract at a particular time. In the case of options on futures, if such
a market does not exist, the Fund, as the holder of an option on futures
contracts, would have to exercise the option and comply with the margin
requirements for the underlying futures contract to realize any profit,
and if the Fund were the writer of the option, its obligation would not
terminate until the option expired or the Fund was assigned an exercise
notice.
Limitations on Purchase and Sale of OTC Options and
Financial and Foreign Currency Futures Contracts and Options Thereon
The following sets forth the limitations that the Fund believes are
currently imposed by law or regulation upon its purchase or sale of OTC
options and stock and bond index futures contracts and options thereon.
Such limitations would not be fundamental policies of the Fund and the
Fund's obligation to comply with them could be changed without approval of
the Fund's shareholders in the event of modification or elimination of such
laws or regulations in the future. The Fund would write put options on
stock indices in the over-the-counter market and on stock or bond index
futures contracts only if they could be covered by segregating with the
Fund's Custodian an amount of cash or short-term investments equal to the
aggregate exercise price of the puts. In general, certain state securities
commissions may require that, so long as shares of the Fund are registered
in those states, the Fund would not (a) write puts having aggregate
exercise prices greater than 25% of total net assets; or (b) purchase (i)
put options on stocks not held in the Fund's portfolio, (ii) put options on
stock indices, or (iii) call options on stocks, stock indices or stock
index futures and options thereon if, after any such purchase, the
aggregate premiums paid for such options and futures would exceed 10% of
the Fund's total assets; provided, however, that the Fund could purchase
put options on stocks held by the Fund if after such purchase the aggregate
premiums paid for such options do not exceed 20% of the Fund's total
assets.
Except as described below, the Fund would write call options on
indices only if on such date it holds a portfolio of stocks at least equal
to the value of the index times the multiplier times the number of
contracts. When the Fund would write a call option on a broadly-based
stock market index, the Fund would segregate or put into escrow with its
Custodian, or pledge to a broker as collateral for the option, cash, U. S.
Government securities, liquid, high grade debt securities or at least one
"qualified security" with a market value at the time the option is written
of not less than 100% of the current index value times the multiplier
times the number of contracts.
If the Fund were to have written an option on an industry or market
segment index, it would segregate or put into escrow with its Custodian, or
pledge to a broker as collateral for the option, at least ten "qualified
securities," all of which would be stocks of issuers in such industry or
market segment, with a market value at the time the option is written of
not less than 100% of the current index value times the multiplier times
the number of contracts. Such stocks would include stocks which
substantially replicate the weighing of the industry or market segment
index and would represent at least 50% of the Fund's holdings in that
industry or market segment. No individual security would represent more
44
<PAGE>
than 15% of the amount so segregated, pledged or escrowed in the case of
broadly-based stock market index options or 25% of such amount in the case
of industry or market segment index options. If at the close of business
on any day the market value of such qualified securities so segregated,
escrowed or pledged were to fall below 100% of the current index value
times the multiplier times the number of contracts, the Fund would so
segregate, escrow or pledge an amount in cash, Treasury bills or other
liquid high grade short-term debt obligations equal in value to the
difference. In addition, when the Fund would write a call on an index
which is in-the-money at the time the call is written, the Fund would
segregate with its Custodian or pledge to the broker as collateral cash,
U.S. Government securities or other liquid high grade, short-term debt
obligations equal in value to the amount by which the call would be in-the-
money times the multiplier times the number of contracts. Any amount
segregated pursuant to the foregoing sentence could be applied to the
Fund's obligation to segregate additional amounts in the event that the
market value of the qualified securities were to fall below 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" would be an equity security against which the Fund
had not written a call option and which had not been hedged by the Fund by
the sale of stock index futures. However, if the Fund were to hold a call
on the same index as the call written where the exercise price of the call
held would be equal to or less than the exercise price of the call written
or greater than the exercise price of the call written if the difference
was maintained by the Fund in cash, Treasury bills or other high grade
short-term obligations in a segregated account with its Custodian, it
would not be subject to the requirements described in this paragraph.
Position and Daily Limits. Transactions by the Fund in listed or OTC
options, futures contracts and options thereon will be subject to
limitations, if any, established by each of the exchanges, boards of trade
or other trading facilities (including NASDAQ) governing the maximum number
of options in each class which may be written or purchased by a single
investor or group of investors acting in concert, regardless of whether the
options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of options, futures contracts
or options thereon which the Fund may write or purchase may be affected by
the futures contracts and options written or purchased by other investment
advisory clients of the investment adviser. An exchange, board of trade or
other trading facility may order the liquidation of positions found to be
in excess of these limits, and it may impose certain other sanctions.
The Subadviser has informed the Board of Directors of the Fund that it
believes that in many cases the utilization of the above-described hedging
strategies would allow the Fund to hedge more efficiently and inexpensively
against changes in the value of the Fund's portfolio securities, in
accordance with the rules and regulations of the CFTC. The Fund also
intends to engage in such transactions when they will increase return or
are economically appropriate for the reduction of risks inherent in the
ongoing management of the Fund.
The Board of Directors believes that adoption of Proposals No. 7 and 8
is in the best interests of the Fund and its shareholders because they
would provide additional flexibility in the management of the Fund's
portfolio.
45
<PAGE>
Required Vote
Adoption of Proposals No. 7 and 8 requires the approval of a majority
of the outstanding voting securities of the Fund, as defined in the
Investment Company Act and described under Proposal No. 5 above. If the
proposed change in Investment Restrictions No. 2, 4 and 8 and related
investment policies are not approved, the Fund would not be able to
purchase and sell OTC options, stock index options on securities of non-
utility companies, stock and bond index futures contracts and options
thereon and futures contracts on foreign currencies and options thereon.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" THESE PROPOSALS NO. 7 AND 8.
APPROVAL OF AN AMENDMENT OF THE FUND'S INVESTMENT
POLICIES AND RESTRICTIONS TO PERMIT THE FUND TO ENGAGE IN
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES
(Proposal No. 9)
At a meeting held on March 17, 1993, the Board of Directors of the Fund
approved amendments to Investment Restrictions No. 4 and 8 which, if
approved by shareholders, would permit the Fund to hedge the foreign
portion of its portfolio by entering into forward foreign currency exchange
contracts and options on foreign currencies. The proposed amendments would
complement the Fund's existing ability to invest up to 30% of its total
assets in foreign securities. A copy of the Fund's Investment Restrictions,
marked to show proposed changes, is attached as Exhibit E.
Set forth below is a discussion of the proposed use of forward foreign
currency exchange contracts and options on foreign currencies.
Forward Foreign Currency Exchange Contracts
A forward contract on foreign currency is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract at a price
set on the date of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (typically
large commercial banks) and their customers. A forward contract generally
has no deposit requirements, and no commissions are charged for such
trades.
When the Fund invests in foreign securities, the Fund may enter into
forward contracts in several circumstances to protect the value of its
portfolio. The Fund may not use forward contracts to generate income,
although the use of such contracts may incidentally generate income. There
is no limitation on the value of forward contracts into which the Fund may
enter. However, the Fund's dealings in forward contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with
respect to specific receivables or payables of the Fund generally arising
in connection with the purchase or sale of its portfolio securities and
accruals of interest or dividends receivable and Fund
46
<PAGE>
expenses. Position hedging is the sale of a foreign currency with respect
to portfolio security positions denominated or quoted in that currency.
The Fund will not speculate in forward contracts. The Fund may not
position hedge with respect to a particular currency for an amount greater
than the aggregate market value (determined at the time of making any sale
of a forward contract) of securities held in its portfolio denominated or
quoted in, or currently convertible into, such currency.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when the Fund anticipates
the receipt in a foreign currency of dividends or interest payments on a
security which it holds, the Fund may desire to "lock in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract
for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, the Fund will be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is
purchased or sold, or the date on which the dividend or interest payment
is declared, and the date on which such payments are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the
U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating
the value of some or all of the portfolio securities of the Fund
denominated in such foreign currency. Requirements under the Internal
Revenue Code for qualification as a regulated investment company may limit
the Fund's ability to engage in transactions in forward contracts.
Options on Foreign Currencies
The Fund would be able to purchase and write put and call options on
foreign currencies and on futures contracts on foreign currencies traded on
securities exchanges or boards of trade (foreign and domestic) for hedging
purposes in a manner similar to that in which forward foreign currency
exchange contracts and futures contracts on foreign currencies will be
employed. Options on foreign currencies and on futures contracts on foreign
currencies are similar to options on stock, except that the Fund has the
right to take or make delivery of a specified amount of foreign currency,
rather than stock.
The Fund may purchase and write options to hedge the Fund's portfolio
securities denominated in foreign currencies. If there is a decline in the
dollar value of a foreign currency in which the Fund's portfolio
securities are denominated, the dollar value of such securities will
decline even though the foreign currency value remains the same. See
"Risks of Investing in Forward Foreign Currency Exchange Contracts and
Options on Foreign Currencies below. To hedge against the decline of the
foreign currency, the Fund may purchase put options on futures contracts
on such foreign currency. If the value of the foreign currency declines,
the gain realized on the put option would offset, in whole or in part, the
adverse effect such decline would have on the value of the portfolio
securities. Alternatively, the Fund may write a call option on a futures
contract on the foreign currency. If the value of the foreign currency
declines, the option would not be exercised
47
<PAGE>
and the decline in the value of the portfolio securities denominated in
such foreign currency would be offset in part by the premium the Fund
received for the option.
If, on the other hand, the investment adviser anticipates purchasing a
foreign security and also anticipates a rise in the value of such foreign
currency (thereby increasing the cost of such security), the Fund may
purchase call options on the foreign currency. The purchase of such
options could offset, at least partially, the effects of the adverse
movements of the exchange rates. Alternatively, the Fund could write a put
option on the currency and, if the exchange rates move as anticipated, the
option would expire unexercised.
Risks of Investing in Forward Foreign Currency Exchange Contracts and
Options on Foreign Currencies
The Fund's successful use of forward foreign currency exchange
contracts and options on foreign currencies depends upon the investment
adviser's ability to predict the direction of the market and political
conditions which requires different skills and techniques than predicting
changes in the securities markets generally. There is no assurance it will
be able to do so. For instance, if the value of the securities being hedged
moves in a favorable direction, the advantage to the Fund would be wholly
or partially offset by a loss in the forward contracts or futures
contracts. Further, if the value of the securities being hedged does not
change, the Fund's net income would be less than if the Fund had not hedged
since there are transaction costs associated with the use of these
investment practices.
These practices are subject to various additional risks. The
correlation between movements in the price of options and the price of the
currencies being hedged is imperfect. The use of these instruments will
hedge only the currency risks associated with investments in foreign
securities, not market risks. In addition, if the Fund purchases these
instruments to hedge against currency advances before it invests in
securities denominated in such currency and the currency market declines,
the Fund might incur a loss on the option.
Forward foreign currency exchange contracts and certain options on
foreign currencies (collectively, OTC transactions) are not traded on
exchanges regulated by the CFTC or the SEC. As a result, and, as is also
the case with forward contracts and OTC options on securities, many of the
protections afforded to exchange participants will not be available. In
addition, OTC transactions can only be entered into with a financial
institution willing to take the opposite side, as principal, of the Fund's
position unless the institution acts as broker and is able to find another
counterparty willing to enter into the transactions with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the
trading of forward foreign currency exchange contracts or OTC options on
foreign currencies and the Fund may be required to retain positions
entered into, until exercise, expiration, or maturity. This in turn could
limit the Fund's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses. Further, OTC transactions
are not subject to the performance guarantee of an exchange clearing
house,
48
<PAGE>
and the Fund will therefore be subject to the risk of default by, or the
bankruptcy of, the financial institution serving as counterparty.
The Board of Directors believes that adoption of Proposal No. 9 is in
the best interests of the Fund and its shareholders since the ability to
hedge the Fund's foreign portfolio would be important during periods of
volatility in the foreign currency markets.
Required Vote
Adoption of Proposal No. 9 requires the approval of a majority of the
outstanding voting securities of the Fund, as defined in the Investment
Company Act and described under Proposal No. 5 above. If the proposed
change in Investment Restrictions No. 4 and 8 and related investment
policies are not approved, the Fund would not be able to engage in forward
foreign currency exchange contracts and options on foreign currencies.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL NO. 9.
APPROVAL OF A MODIFICATION OF THE FUND'S INVESTMENT
RESTRICTION LIMITING THE FUND'S ABILITY TO INVEST IN A
SECURITY IF THE FUND WOULD HOLD MORE THAN TEN PERCENT
OF ANY CLASS OF SECURITIES OF AN ISSUER
(Proposal No. 10)
On March 17, 1993, at the request of the Fund's Manager and Subadviser,
the Board of Directors considered and recommends for shareholder approval
modification of Investment Restriction No. 5 to delete the restriction that
prohibits the Fund from the purchase of a security if the Fund would hold
more than ten percent of any class of securities of an issuer.
The Fund currently may not purchase a security if the Fund would then
hold more than 10% of any class of securities of an issuer. Under this
restriction, all common stock issues of an issuer, all preferred stock
issues, and all debt issues are each taken as a separate single class. The
Fund's Subadviser believes the restriction is confining and has requested
its deletion. This restriction, in its current form, is not required under
federal securities laws. If the proposal is approved, and a state
securities commission requires inclusion of this limitation, the Fund would
continue to comply with the restriction as a non-fundamental operating
policy so long as the Fund sells its shares in that state.
Investment Restriction No. 5 provides that the Fund may not:
Purchase any security if as a result the Fund would then hold more
than 10% of any class of securities of an issuer (taking all common
stock issues of an issuer as a single class, all preferred stock
issues as a single class and all debt issues as a single class) or
more than 10% of the outstanding voting securities of an issuer.
The Board of Directors is proposing that Investment Restriction No. 5
be modified to read as follows:
The Fund may not:
Purchase any security if as a result the Fund would then hold more
than 10% of the outstanding voting securities of an issuer.
49
<PAGE>
Currently, the Fund may not hold more than 10% of the outstanding
voting securities of an issuer pursuant to Section 5(b)(1) of the
Investment Company Act and state securities laws. This restriction would
remain in effect.
The Board of Directors believes that adoption of Proposal No. 10 is in
the best interests of the Fund and its shareholders.
Required Vote
Adoption of Proposal No. 10 requires the approval of a majority of the
outstanding voting securities of the Fund, as defined by the Investment
Company Act and described under Proposal No. 5 above. 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 RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL
NO. 10.
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 AN INTEREST
(Proposal No. 11)
On March 17, 1993, at the request of the Fund's Manager, the Board of
Directors considered and recommends for shareholder approval elimination of
the Fund's Investment Restriction No. 7, which provides that the Fund may
not:
Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or Director of the Fund or of the Manager owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers
and directors who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.
The Manager has advised the Board of Directors that the restriction
upon the Fund's investing in companies in which officers and directors of
the Fund or the Manager own more than 1/2 of 1% of the outstanding
securities of such company 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 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 are 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. 11 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. 7 requires the approval of a majority of the
Fund's outstanding voting securities, as
50
<PAGE>
defined in the Investment Company Act and described under Proposal No. 5
above. 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 RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL NO. 11.
AMENDMENT TO THE MANAGEMENT AGREEMENT BETWEEN THE
FUND AND PRUDENTIAL MUTUAL FUND MAGEMENT, INC.
(Proposal No. 12)
At a meeting held on September 9, 1993, the Board of Directors of the
Fund, including a majority of the Directors who are not parties to the
Management Agreement or interested persons of such parties (as defined in
the Investment Company Act), approved an amendment to the Fund's Management
Agreement to reduce the fees paid to PMF for assets in excess of $2
billion. Information about PMF and the terms of the Management Agreement,
including the present fee structure, is discussed under "Management of the
Fund-Terms of the Management Agreement." As approved by the Board of
Directors, Section 8 of the Management Agreement would be amended to read
as follows:
For the services provided and the expenses assumed pursuant
to this Agreement, the Fund will pay to the Manager as full
compensation therefor a fee at an annual rate of .60 of 1% of the
Fund's average daily net assets up to and including $250 million,
.50 of 1% of the next $500 million, .45 of 1% of the next $750
million, .40 of 1% of the next $500 million, [and] .35 of 1% of
[the excess over] the next $2 billion, .325 of 1% of the next $2
billion and .30 of 1% of the excess over $6 billion of the Fund's
average daily net assets. This fee will be computed daily and
will be paid to the Manager monthly. Any reduction in the fee
payable by the Manager to the Fund pursuant to paragraph 7 shall
be made monthly. Any such reductions or payments are subject to
readjustment during the year.*
*[Deletions are in brackets.] Additions are underlined.
Effective October 1, 1993, PMF voluntarily agreed to waive its fee to
conform with the proposed amendment. As of December 31, 1993, the aggregate
net asset value of the Fund was $5,092,240,300.
The Board of Directors believes that this amendment is in the best
interests of the shareholders of the Fund.
Required Vote
Adoption of Proposal No. 12 requires the approval of a majority of the
outstanding voting securities of the Fund, as defined in the Investment
Company Act and described under Proposal No. 5 above. In the event
shareholders do not approve the proposed amendment of the Fund's Management
Agreement, the Fund's Management Agreement will continue in its present
form.
51
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 12.
APPROVAL OF AN AMENDMENT OF ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE FUND
(Proposal No. 13)
The Board of Directors proposes that the Fund's name be changed from
Prudential-Bache Utility Fund, Inc. to Prudential Utility 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
Utility 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
shares. Management of the Fund expressed its opinion that the proposed
name, "Prudential Utility 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. 13 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 Utility Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL NO. 13.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(Proposal No. 14)
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 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 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
52
<PAGE>
Audit Committee reviews and approves all services
provided by the independent 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.
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 RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL NO. 14.
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 PROPOSALS
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.
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<PAGE>
Exhibit A
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
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
============
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.
3. 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.
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the
following:
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
===========
4. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company participates in a
variety of financial and administrative transactions with affiliates.
A-2
<PAGE>
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."
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:
Year Minimum Rental
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
===========
A-3
<PAGE>
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 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-4
<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-5
<PAGE>
Exhibit B
AMENDMENT TO ARTICLES OF INCORPORATION
Article V, Section 1 of the Fund's Articles of Incorporation are
proposed to be amended and restated as follows:
Article V
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 2,000,000,000 shares of the par
value of $.01 per share and of the aggregate par value of $20,000,000 to be
divided initially into three classes, consisting of 566,666,666 shares of
Class A Common Stock, 866,666,667 shares of Class B Common Stock and
566,666,667 shares of Class C Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock of the
Corporation shall represent the same interest in the Corporation and
have identical voting, dividend, liquidation and other rights except
that (i) Expenses related to the distribution of each class of shares
shall be borne solely by such class; (ii) The bearing of such expenses
solely by shares of each class shall be appropriately reflected (in the
manner determined by the Board of Directors) in the net asset value,
dividends, distribution and liquidation rights of the shares of such
class; (iii) The Class A Common Stock shall be subject to a front-end
sales load and a Rule 12b-1 distribution fee as 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 a contingent 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 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
B-1
<PAGE>
(l)(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 UTILITY 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 Utility
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, sales literature
and other promotional and distribution activities and to provide for the
servicing and maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of
the Fund and to service shareholder accounts using all of the facilities
of the distribution networks of Prudential Securities Incorporated
(Prudential Securities) and Pruco Securities Corpora-
C-1
<PAGE>
tion (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.
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
C-2
<PAGE>
(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 or Trustees shall from time
to time reasonably request, including information about Distribution
Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, the Plan shall, unless
earlier terminated in accordance with its terms, continue in full force
and effect thereafter for so long as such continuance is specifically
approved at least annually by a 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.
C-3
<PAGE>
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 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 UTILITY 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 Utility
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, sales literature
and other promotional and distribution activities and to provide for the
servicing and maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of
the Fund and to service shareholder accounts using all of the facilities
of the Prudential Securities distribution network, including sales
personnel, branch office and central support
D-1
<PAGE>
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 of .75 of 1% per annum of the average daily net assets
of the Class B shares of the Fund for the performance of Distribution
Activities. The Fund shall calculate and accrue daily amounts payable by
the Class B shares of the Fund hereunder and shall pay such amounts
monthly or at such other intervals as the Board of Directors may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any
other class of shares of the Fund except that distribution expenses
attributable to the Fund as a whole will be allocated to the Class B
shares according to the ratio of the sale of Class B shares to the total
sales of the Fund's shares over the Fund's fiscal year or such other
allocation method approved by the Board of Directors. The allocation of
distribution expenses among classes will be subject to the review of the
Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of
Class B shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund
prospectuses, statements of additional information and periodic
financial reports and sales literature to persons other than
current shareholders of the Fund; and
D-2
<PAGE>
(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.
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.
D-3
<PAGE>
8. 12b-1 Directors
While the Plan is in effect, the selection and nomination of the 12b-1
Directors of the Fund shall be committed to the discretion of the 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>
Exhibit E
[Deletions are in brackets.] Additions are underlined.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies, which
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities" means the lesser of (1) 67% of the Fund's
shares represented at a meeting at which more than 50% of the outstanding
shares are present in person or represented by proxy, or (2) more than 50%
of the Fund's outstanding shares.
The Fund may not:
1. Purchase any security (other than obligations of the U.S.
Government, its agencies, or instrumentalities) if as a result with
respect to 75% of the Fund's total assets, more than 5% of the Fund's
total assets (taken at current value) would then be invested in securities
of a single issuer; the Fund will concentrate its investments in utility
stocks as described under "Investment Objective and Policies."
2. Purchase securities on margin (but the Fund may obtain such short-
term credits as may be necessary for the clearance of transactions); the
deposit by the Fund of initial or variation margin in connection with
futures contracts or options is not considered the purchase of a security
on margin.
3. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short, and unless not more than
25% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time.
4. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or
emergency purposes or for the clearance of transactions. The Fund may
pledge up to 20% of the value of its total assets to secure such
borrowings. For purposes of this restriction, obligations of the Fund to
Directors pursuant to deferred compensation arrangements, the purchase and
sale of securities on a when-issued or delayed delivery basis, the
purchase and sale of options, futures contracts, and forward foreign
currency exchange contracts and collateral arrangements with respect to
the purchase and sale of options, futures contracts and forward foreign
currency exchange contracts are not deemed to be the issuance of a senior
security or the pledge of assets.
5. Purchase any security if as a result the Fund would then hold [more
than 10% of any class of securities of an issuer (taking all common stock
issues of an issuer as a single class, all preferred stock issues as a
single class, and all debt issues as a single class) or] more than 10% of
the outstanding voting securities of an issuer.
6. Purchase any security if as a result the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including
E-1
<PAGE>
predecessors) less than three years old [or in equity securities for which
market quotations are not readily available].
[7. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or of the Manager owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers
and directors who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.]
7. [8.] Buy or sell commodities or commodity contracts, or real estate
or interests in real estate, except that the Fund may purchase and sell
futures contracts, forward foreign currency exchange contracts and
[although it may purchase and sell] securities which are secured by real
estate and securities of companies which invest or deal in real estate.
8. [9.] Act as underwriter except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
9. [10.] Make investments for the purpose of exercising control or
management.
[11. Purchase any security restricted as to disposition under federal
securities laws.]
10. [12.] Invest in securities of other investment companies, except
by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets
(taken at current value) would be invested in such securities, or except
as part of a merger, consolidation or other acquisition.
11. [13.] Invest in interests in oil, gas or other mineral exploration
or development programs, although it may invest in the common stocks of
companies which invest in or sponsor such programs.
12. [14.] Make loans, except through (i) the purchase of bonds,
debentures, commercial paper, corporate notes and similar evidences of
indebtedness of a type commonly sold privately to financial institutions
[(subject to the limitation in paragraph 11 above)], (ii) the lending of
its portfolio securities, as described under "Investment Objective and
Policies-Lending of Securities" and (iii) repurchase agreements
[(repurchase agreements with a maturity of longer than 7 days together
with other illiquid assets being limited to 10% of the Fund's total
assets)]. (The purchase of a portion of an issue of securities described
under (i) above distributed publicly, whether or not the purchase is made
on the original issuance, is not considered the making of a loan.)
E-2
<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 UTILITY FUND
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
The undersigned hereby appoints Susan C.
Cote, S. Jane Rose and Marguerite E.H.
Morrison as Proxies, 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 Utility Fund, held of record by
the undersigned on [ ,] 1994 at the
Special Meeting of Shareholders to be held on
[ ,] 1994, or any adjournment thereof.
Your Account No.:
Your voting shares are:
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.
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.
Robert R. Fortune
Delayne D. Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas A. Owens, Jr.
Richard A. Redeker
Robert J. Schultz
Merle T. Welshans
For Against Abstain
2. To approve an amendment of the Fund's Articles 2 [X] [X] [X]
of 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 modify the Fund's investment objective to 5 [X] [X] [X]
expand the equity and debt securities in which
the Fund may invest.
6. To approve the elimination of the Fund's 6 [X] [X] [X]
fundamental investment restrictions regarding
restricted and illiquid securities.
7. To approve an amendment of the Fund's 7 [X] [X] [X]
investment policies and restrictions to permit
certain hedging and income enhancement
strategies using over-the-counter options on
securities of utility and non-utility
companies and stock index options on
securities of non-utility companies.
8. To approve an amendment of the Fund's 8 [X] [X] [X]
investment policies and restriction to permit
certain hedging and income enhancement
strategies using futures contracts and options
theron and future contracts on foreign
currencies and options thereon.
9. To approve policies and an amendment of 9 [X] [X] [X]
the Fund's investment restrictions to permit
investments in forward foreign currency
exchange contracts and options on foreign
currencies.
10. To approve an amendment of the Fund's 10 [X] [X] [X]
investment restriction limiting the Fund's
ability to invest in a security if the Fund
would hold more than 10% of any class of
securities of an issuer.
11. To approve the elimination of the Fund's 11 [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 the Fund's
adviser own more than a specified interest.
12. To approve an amendment of the Management 12 [X] [X] [X]
Agreement between the Fund and Prudential
Mutual Fund Management, Inc. to reduce
management fees.
13. To approve an amendment to the Articles of 13 [X] [X] [X]
Incorporation to change the name of the Fund
to "Prudential Utility Fund, Inc."
14. To ratify the selection by the Board of 14 [X] [X] [X]
Directors of Price Waterhouse as independent
accountants for the year ending December 31,
1994.
Only shares of Common Stock ofthe Fund of record at the
close of business of [ ,] 1994 are entitled to
notice of and to vote at this Meeting or any adjournment
thereof.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
- ----------------------------------------------------------
Signature Date
- ----------------------------------------------------------
Signature (Joint Ownership)
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, 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 UTILITY FUND
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
The undersigned hereby appoints Susan C.
Cote, S. Jane Rose and Marguerite E.H.
Morrison as Proxies, 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 B common stock of
Prudential Utility Fund, held of record by
the undersigned on [ ], 1994 at the
Special Meeting of Shareholders to be held on
[ ], 1994, or any adjournment thereof.
Your Account No.:
Your voting shares are:
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.
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.
Robert R. Fortune
Delayne D. Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas A. Owens, Jr.
Richard A. Redeker
Robert J. Schultz
Merle T. Welshans
For Against Abstain
2. To approve an amendment of the Fund's Articles 2 [X] [X] [X]
of 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 modify the Fund's investment objective to 5 [X] [X] [X]
expand the equity and debt securities in which
the Fund may invest.
6. To approve the elimination of the Fund's 6 [X] [X] [X]
fundamental investment restrictions regarding
restricted and illiquid securities.
7. To approve an amendment of the Fund's 7 [X] [X] [X]
investment policies and restrictions to permit
certain hedging and income enhancement
strategies using over-the-counter options on
securities of utility and non-utility
companies and stock index options on
securities of non-utility companies.
8. To approve an amendment of the Fund's 8 [X] [X] [X]
investment policies and restrictions to permit
certain hedging and income enhancement
strategies using futures contracts and options
theron and future contracts on foreign
currencies and options thereon.
9. To approve an amendment of the Fund's 9 [X] [X] [X]
investment policies and restrictions to
permit investments in forward foreign
currency exchange contracts and options
on foreign currencies.
10. To approve an amendment of the Fund's 10 [X] [X] [X]
investment restriction limiting the Fund's
ability to invest in a security if the Fund
would hold more than 10% of any class of
securities of an issuer.
11. To approve the elimination of the Fund's 11 [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 the Fund's
adviser own more than a specified interest.
12. To approve an amendment of the Management 12 [X] [X] [X]
Agreement between the Fund and Prudential
Mutual Fund Management, Inc. to reduce
management fees.
13. To approve an amendment to the Articles of 13 [X] [X] [X]
Incorporation to change the name of the Fund
to "Prudential Utility Fund, Inc."
14. To ratify the selection by the Board of 14 [X] [X] [X]
Directors of Price Waterhouse as independent
accountants for the year ending December 31,
1994.
Only shares of Common Stock ofthe Fund of record at the
close of business of [ ,] 1994 are entitled to
notice of and to vote at this Meeting or any adjournment
thereof.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
- ----------------------------------------------------------
Signature Date
- ----------------------------------------------------------
Signature (Joint Ownership)
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, 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.
