As filed with the Securities and Exchange Commission
on May 12, 1994
Registration No. 2-72097
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 19 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [X]
(Check appropriate box or boxes)
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PRUDENTIAL-BACHE UTILITY FUND, INC.
(Exact name of registrant as specified in charter)
(Doing business as Prudential Utility Fund)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a), of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously registered an indefinite number of shares of its
Common Stock, par value $.01 per share. The Registrant filed a notice
under such Rule for its fiscal year ended December 31, 1993 on or before
February 28, 1994.
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<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
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Part A
<S> <C> <C>
Item 1. Cover Page ................................................. Cover Page
Item 2. Synopsis ................................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information ............................ Fund Expenses; Selected Per Share
Data and Ratios; How the Fund
Calculates Performance
Item 4. General Description of Registrant .......................... Cover Page; Fund Highlights; How the
Fund Invests; General Information
Item 5. Management of the Fund ..................................... Selected Per Share Data and Ratios;
How the Fund is Managed
Item 6. Capital Stock and Other Securities ......................... Taxes, Dividends and
Distributions;
General Information
Item 7. Purchase of Securities Being Offered ....................... Shareholder Guide; How the Fund
Values its Shares
Item 8. Redemption or Repurchase ................................... Shareholder Guide; How the Fund
Values its Shares; General Information
Item 9. Pending Legal Proceedings .................................. How the Fund is Managed
Part B
Item 10. Cover Page ................................................. Cover Page
Item 11. Table of Contents .......................................... Table of Contents
Item 12. General Information and History ............................ General Information
Item 13. Investment Objectives and Policies ......................... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund ..................................... Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities ........ Not Applicable
Item 16. Investment Advisory and Other Services ..................... Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices ................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ......................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status ................................................. Taxes
Item 21. Underwriters ............................................... Distributor
Item 22. Calculation of Performance Data ............................ Performance Information
Item 23. Financial Statements ....................................... Financial Statements
Part C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
Prudential Utility Fund, Inc.
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Prospectus dated , 1994
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Prudential Utility Fund, Inc. (the Fund) is an open-end, diversified
management investment company. Its investment objective is to seek high
current income and moderate capital appreciation through investment in
equity and debt securities of utility companies. 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. The Fund may also purchase and
sell options on equity securities and stock index options, futures
contracts and options thereon, forward foreign currency exchange contracts,
and options on foreign currencies pursuant to limits described herein. See
"How the Fund Invests-Investment Objective and Policies." The Fund's
address is One Seaport Plaza, New York, New York 10292, and its telephone
number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Additional
information about the Fund has been filed with the Securities and Exchange
Commission in a Statement of Additional Information, dated , 1994, which
information is incorporated herein by reference (is legally considered a
part of this Prospectus) and is available without charge upon request to
the Fund at the address or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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FUND HIGHLIGHTS
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The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
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What is Prudential Utility Fund, Inc.?
Prudential Utility Fund, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing
the proceeds of such sale in a portfolio of securities designed to achieve
its investment objective. Technically, the Fund is an open-end, diversified
management investment company.
What is the Fund's Investment Objective?
The Fund's investment objective is to seek high current income and
moderate capital appreciation. It seeks to achieve this objective by
investing primarily in equity and debt securities of utility companies.
"Utility companies" include electric, gas, gas pipeline, telephone,
telecommunications, water and cable companies. See "How the Fund
Invests-Investment Objective and Policies" at page 7.
What Are the Fund's Special Characteristics and Risks?
The Fund may purchase and sell options on equity securities, stock
index options, futures contracts and options thereon, forward foreign
currency exchange contracts, and options on foreign currencies pursuant to
limits described herein. These activities may be considered speculative and
may result in higher risks and costs to the Fund. See "How the Fund
Invests-Investment Objective and Policies" at page 7.
In addition, the Fund may invest up to 30% of its total assets in
foreign securities. Investing in securities of foreign companies and
countries involves certain considerations and risks not typically
associated with investing in securities of domestic companies. See "How the
Fund Invests-Other Investments and Policies" at page 11.
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the
Manager of the Fund and is currently compensated for its services 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, .35 of 1% of 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. As of March
31, 1994, PMF served as manager or administrator to [66] investment
companies, including 37 mutual funds, with aggregate assets of
approximately $49 billion. The Prudential Investment Corporation (PIC or
the Subadviser) furnishes investment advisory services in connection with
the management of the Fund under a Subadvisory Agreement with PMF. See "How
the Fund is Managed-Manager" at page 15.
Who Distributes the Fund's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the
Distributor of the Fund's Class A shares and is currently paid for its
services at an annual rate of .25 of 1% of the average daily net assets of
the Class A shares.
Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts as
the Distributor of the Fund's Class B and Class C shares and is paid for
its services at an annual rate of 1% of the average daily net assets of
each of the Class B and Class C shares. See "How the Fund is Managed-
Distributor" at page 16.
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2
<PAGE>
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What is the Minimum Investment?
The minimum initial investment for Class A and Class B shares is $1,000
per class and $5,000 for Class C shares. The minimum subsequent investment
is $100 for all classes. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Guide-How to Buy Shares of the Fund" at page 21 and
"Shareholder Guide-Shareholder Services" at page 29.
How Do I Purchase Shares?
You may purchase shares of the Fund through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund, through
its transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the
Transfer Agent) at the net asset value per share (NAV) next determined
after receipt of your purchase order by the Transfer Agent or Prudential
Securities plus a sales charge which may be imposed either (i) at the time
of purchase (Class A shares) or (ii) on a deferred basis (Class B or Class
C shares). See "How the Fund Values its Shares" at page 18 and "Shareholder
Guide-How to Buy Shares of the Fund" at page 21.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
*Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
*Class B Shares: Sold without an initial sales charge but are subject
to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be
imposed on certain redemptions made within six years
of purchase. Although Class B shares are subject to
higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically
convert to Class A shares (which are subject to lower
ongoing expenses) approximately seven years after
purchase.
*Class C Shares: Sold without an initial sales charge and, for one
year after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.
See "Shareholder Guide-Alternative Purchase Plan" at page 22.
How Do I Sell My Shares?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order.
However, the proceeds from redemptions of Class B and Class C shares may be
subject to a CDSC. See "Shareholder Guide-How to Sell Your Shares" at page
25.
How Are Dividends and Distributions Paid?
The Fund expects to pay dividends of net investment income quarterly
and make distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that
they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 19.
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3
<PAGE>
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FUND EXPENSES
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<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Shareholder Transaction Expenses\D
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ....... 5% None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends ........... None None None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) ............. None* 5% during the first year, 1% on redemptions
decreasing by 1% annually made within one
to 1% in the fifth and year of purchase
sixth years and 0% the
seventh year*
Redemption Fees ........................... None None None
Exchange Fees ............................. None None None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares**
-------------- -------------- ----------------
<S> <C> <C> <C>
Management Fees ........................... .40% .40% .40%
12b-1 Fees\D .............................. .25%\D\D 1.00% 1.00%
Other Expenses ............................ .20% .20% .20%
---- ---- ----
Total Fund Operating Expenses ............. .85% 1.60% 1.60%
---- ---- ----
---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
Class A ................................................................ $58 $76 $95 $150
Class B ................................................................ $66 $80 $97 $160
Class C** .............................................................. $26 $50 $87 $190
You would pay the following expenses on the same investment,
assuming no redemption:
Class A ................................................................ $58 $76 $95 $150
Class B ................................................................ $16 $50 $87 $160
Class C** .............................................................. $16 $50 $87 $190
<FN>
The above example with respect to Class A and Class B shares is based
on restated data for the Fund's fiscal year ended December 31, 1993. The
above example with respect to Class C shares is based on expenses expected
to have been incurred if Class C shares had been in existence during the
fiscal year ended December 31, 1993. The examples should not be considered
a representation of past or future expenses. Actual expenses may be greater
or less than those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "How the Fund is Managed." "Other Expenses" includes an
estimate of operating expenses of the Fund, such as directors' and
professional fees, registration fees, reports to shareholders and transfer
agency and custodian fees.
* Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide-
Conversion Feature-Class B Shares."
** Estimated based on expenses expected to have been incurred if Class
C shares had been in existence during the fiscal year ended
December 31, 1993.
\D Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges
and asset-based sales charges on shares of the Fund may not exceed
6.25% of total gross sales, subject to certain exclusions. This
6.25% limitation is imposed on each class of the Fund rather than on
a per shareholder basis. Therefore, long-term Class B and Class C
shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in
such shares. See "How the Fund is Managed-Distributor."
\D\D Although the Class A Distribution and Service Plan provides that the
Fund may pay a distribution fee of up to .30 of 1% per annum of the
average daily net assets of the Class A shares, the Distributor has
agreed to limit its distribution fees with respect to Class A shares
of the Fund 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. See "How the Fund Is Managed-Distributor."
</TABLE>
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4
<PAGE>
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FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class A Shares)
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The following financial highlights have been audited by Price Waterhouse,
independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
the notes thereto, which appear in the Statement of Additional Information.
The following financial highlights contain selected data for a Class A
share of common stock outstanding, total return, ratios to average net
assets and other supplemental data for each of the periods indicated. The
information is based on data contained in the financial statements. No
Class C shares were outstanding during the periods indicated.
- -------------------------------------------------------------------------------
Class A
------------------------------------
January 22,
1990/D/D
Year Ended December 31, through
----------------------- December 31,
1993 1992 1991 1990
------ ------ ---- ------
PER SHARE OPERATING PERFORMANCE:*
Net asset value, beginning of period ..... $ 8.97 $ 8.72 $ 7.63 $ 8.65**
------- ------- ------- -------
Income from investment operations
Net investment income .................... .33 .38 .39 .36
Net realized and unrealized gains (losses)
on investment and foreign currency
transactions ........................... 1.12 .45 1.10 (.38)**
------- ------- ------- -------
Total from investment operations ..... 1.45 .83 1.49 (.02)**
Less distributions
Dividends from net investment income ..... (.29) (.34) (.39) (.40)
Distributions from net realized gains .... (.41) (.24) (.01) (.60)
------- ------- ------- -------
Total distributions .................. (.70) (.58) (.40) (1.00)
------- ------- ------- -------
Net asset value, end of period ........... $9.72 $8.97 $8.72 $7.63
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN\D\D\D ....................... 16.28% 9.88% 19.95% (0.11)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000) ...... $337 $201 $111 $73
Ratios to average net assets:
Expenses, including distribution fees ... .80% .81% .87% .97%\D
Expenses, excluding distribution fees ... .60% .61% .67% .77%\D
Net investment income ................... 3.16% 4.14% 4.69% 4.78%\D
Portfolio turnover rate .................. 24% 24% 38% 53%
- ------------
* Restated to reflect 2 for 1 stock split paid July 6, 1993 to shareholders
of record July 2, 1993.
** Restated.
\D Annualized.
\D\D Commencement of offering of Class A shares.
\D\D\D Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than one
full year are not annualized.
5
<PAGE>
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FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class B Shares)
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The following financial highlights for each of the five years ended
December 31, 1993 have been audited by Price Waterhouse, independent
accountants, whose report thereon was unqualified. This information should
be read in conjunction with the financial statements and the notes thereto,
which appear in the Statement of Additional Information. The following
financial highlights contain selected data for a Class B share of common
stock outstanding, total return, ratios to average net assets and other
supplemental data for each of the periods indicated. The information is
based on data contained in the financial statements. No Class C shares were
outstanding during the periods indicated.
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<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989** 1988(b) 1987 1986 1985 1984(a)\D
PER SHARE OPERATING
PERFORMANCE:*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year .... $ 8.96 $ 8.71 $ 7.63 $ 9.17 $ 7.31 $ 6.29 $ 7.39 $ 6.44 $ 5.62 $ 5.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income . .24 .31 .32 .31 .36 .33 .33 .32 .53 .85(d)
Net realized and
unrealized gains
(losses) on investment
and foreign currency
transactions ......... 1.12 .46 1.10 (.91) 2.30 1.07 (.93) 1.69 1.16 .96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ....... 1.36 .77 1.42 (.60) 2.66 1.40 (.60) 2.01 1.69 1.81
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Dividends from net
investment income .... (.22) (.28) (.33) (.34) (.36) (.33) (.33) (.29) (.43) (.82)
Distributions from
net realized
gains ................ (.41) (.24) (.01) (.60) (.44) (.05)\D\D\D (.17) (.77) (.44) (.41)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (.63) (.52) (.34) (.94) (.80) (.38) (.50) (1.06) (.87) (1.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of year .......... $ 9.69 $ 8.96 $ 8.71 $ 7.63 $ 9.17 $ 7.31 $ 6.29 $ 7.39 $ 6.44 $ 5.62
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN:\D\D 15.27% 9.02% 19.01% (6.48)% 37.17% 22.74% (8.65)% 32.52% 33.30% 38.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000,000) ............. $4,756 $3,438 $2,818 $2,395 $2,306 $1,584 $1,390 $1,521 $ 339 $ 98
Ratios to average net
assets:
Expenses, including
taxes and interest(c) 1.60% 1.61% 1.67% 1.73% 1.46% 1.56% 1.53% 1.42% 1.13% (2.50)%(d)
Expenses, including
taxes but excluding
interest (c) ........ 1.60% 1.61% 1.67% 1.73% 1.46% 1.56% 1.53% 1.42% 1.13% (3.08)%(d)
Expenses, excluding
taxes and interest(c) 1.60% 1.61% 1.67% 1.73% 1.46% 1.56% 1.53% 1.42% 1.13% 1.15%(d)
Expenses, excluding
distribution fees,
taxes and interest(c) .60% .61% .67% .74% .73% .76% .80% .74% .93% 1.15%(d)
Net investment income 2.36% 3.34% 3.89% 3.94% 4.19% 4.44% 4.69% 4.41% 6.70% 13.35%
Portfolio turnover .... 24% 24% 38% 53% 75% 66% 65% 49% 39% 122%
<FN>
- --------------
* Restated to reflect 2 for 1 stock split paid to shareholders of record
July 2, 1993.
** Based on average month-end shares outstanding.
\D Restated to reflect 2 for 1 stock split paid to shareholders of record
November 19, 1984.
\D\D Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods
of less than one full year are not annualized.
\D\D\D Full amount of 1988 distribution represents a distribution from
paid-in capital.
(a) On August 24, 1984, the shareholders of the Fund approved a change in
the Fund's objective (to high current income and moderate capital
appreciation) and tax status (to a "regulated investment company"
under the Internal Revenue Code).
(b) Prudential Mutual Fund Management, Inc. succeeded Prudential
Securities Incorporated as manager of the Fund May 2, 1988. See
"Manager" in the Statement of Additional Information.
(c) Because of the adoption of a plan of distribution effective on July 1,
1985 and an amended and restated plan of distribution effective
January 22, 1990, and the changes noted in footnote (b), historical
expenses and ratios of expenses to average net assets are not
necessarily indicative of future expenses and related ratios. See
"How the Fund is Managed-Distributor."
(d) Net of reimbursement.
</TABLE>
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6
<PAGE>
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES
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. 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 common
stocks of utility companies that the investment adviser believes have the
potential for high expected return; however, the Fund may invest in
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
such sectors or securities markets as a whole warrant, the Fund may
temporarily be primarily invested in money market instruments.
The Fund may invest up to 30% of its total assets in securities of
foreign issuers, which may involve additional risks. See "Foreign
Securities" below. The Fund may also invest in American Depositary
Receipts, which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer.
American Depositary Receipts are not considered foreign securities for
purposes of the 30% limitation.
As a result of the Fund's concentration of its investments, it is
subject to risks associated with the utility industry. Among these are
inflationary and other cost increases in fuel and other operating expenses,
high interest costs on borrowings needed for capital construction programs,
including compliance with environmental regulations, and changes in the
regulatory climate.
The Fund anticipates that, due to short-term trading and the use of
options, its portfolio turnover rate may exceed 100%, although the rate is
not expected to exceed 200%. See "Investment Objective and Policies" in the
Statement of Additional Information.
The Fund's investment objective is a fundamental policy and, therefore,
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended (the Investment Company Act). Fund policies that
are not fundamental may be modified by the Board of Directors.
Foreign Securities
The Fund may invest up to 30% of its total assets in foreign
securities. For purposes of this limitation, American Depositary Receipts
are not deemed to be foreign securities. In many instances, foreign debt
securities may provide higher yields but may be subject to greater
fluctuations in price than securities of domestic issuers which have
similar maturities and quality. Under certain market conditions these
investments may be less liquid than the securities of U.S. corporations and
are certainly less liquid than securities issued or guaranteed by the U.S.
Government, its instrumentalities or agencies.
Foreign securities involve certain risks which should be considered
carefully by an investor in the Fund. These risks include exchange rate
fluctuations, political, social or economic instability of the country of
issue, diplomatic developments which could affect the assets of the Fund
held in foreign countries, and the possible imposition of exchange
controls, withholding taxes on dividends or interest payments, confiscatory
taxes or expropriation. There may be less government supervision and
regulation of foreign securities exchanges, brokers and listed companies
than exists in the United States, foreign brokerage commissions and custody
fees are generally higher than those in the United States, and foreign
security settlements will in some instances be subject to delays and
related administrative uncertainties. The Fund will probably have greater
difficulty in obtaining or enforcing a court judgment abroad than it would
have doing so within the United States. Less information may be publicly
available about a foreign company than about a domestic company, and
foreign companies may not be subject to uniform accounting, auditing and
financial
7
<PAGE>
reporting standards comparable to those applicable to domestic companies.
In addition, foreign securities markets have substantially less volume
than the New York Stock Exchange and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S.
companies.
Although the foreign companies in which the Fund may invest will be
providing products and services substantially similar to domestic companies
in which the Fund has and may invest, the utility companies of many major
countries, such as the United Kingdom, Spain and Mexico, have only recently
substantially increased investor ownership (including ownership by U.S.
investors) and, as a result, have only recently become subject to
adversarial rate-making procedures. In addition, certain foreign utilities
are experiencing demand growth at rates greater than economic expansion in
their countries or regions. These factors as well as those associated with
foreign issuers generally may affect the future values of foreign
securities held by the Fund.
HEDGING AND INCOME ENHANCEMENT STRATEGlES
The Fund may also engage in various portfolio strategies to reduce
certain risks of its investments and to attempt to enhance income. These
strategies include (1) the purchase and writing (i.e., sale) of put and
call options on equity securities and on stock indices, (2) the purchase
and sale of listed stock and bond index futures and options thereon and (3)
the purchase and sale of options on foreign currencies and futures
contracts on foreign currencies and options thereon. The Fund may engage in
these transactions on U.S. or foreign securities exchanges or, in the case
of equity and stock index options, in the over-the-counter market. The Fund
may also purchase and sell forward foreign currency exchange contracts. The
Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that
any of these strategies will succeed. New financial products and risk
management techniques continue to be developed and the Fund may use these
new investments and techniques to the extent they are consistent with its
investment objective and policies. See "Investment Objective and Policies"
in the Statement of Additional Information.
Options Transactions
Options on Equity Securities. The Fund may purchase and write (i.e.,
sell) put and call options on equity securities that are traded on
securities exchanges, on NASDAQ (NASDAQ options) or in the over-the-
counter market (OTC).
A call option is a short-term contract which gives the purchaser, in
return for a premium paid, the right to buy the security subject to the
option at a specified exercise price at any time during the term of the
option. The writer of the call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending on the terms
of the option contract, the underlying securities to the purchaser upon
receipt of the exercise price. When the Fund writes a call option, the Fund
gives up the potential for gain on the underlying securities in excess of
the exercise price of the option during the period that the option is open.
A put option gives the purchaser, in return for a premium, the right,
for a specified period of time, to sell the securities subject to the
option to the writer of the put at the specified exercise price. The writer
of the put, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities underlying the option at the exercise
price. The Fund as the writer of a put option might, therefore, be
obligated to purchase underlying securities for more than their current
market price.
The Fund will write only covered call options. A call option on debt or
equity securities 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 by
the Fund 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 high grade short-term obligations or short-term
U.S. government securities in a segregated account with its Custodian. The
premium paid by the purchaser
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<PAGE>
of an option will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand and interest
rates.
The Fund may also purchase a "protective put," i.e., a put option
acquired 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 as described below.
Options on Stock Indices. The Fund may also purchase and write (i.e.,
sell) put and call options on stock indices traded on securities exchanges,
on NASDAQ or in the over-the-counter market. Such options may include
options on non-utility companies. Options on stock indices are similar to
options on stock except that, rather than the right to take or make
delivery of a stock at a specified price, an option on a stock index gives
the holder the right in return for premium paid to receive, upon exercise
of the option, an amount of cash if the closing level of the 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. The writer of
the index option, in return for a premium, is obligated to pay the amount
of cash due upon exercise of the option. Unlike stock options, all
settlements are in cash, and gain or loss depends on price movements in the
underlying market generally (or in a particular industry or segment of the
market) rather than price movements in individual securities.
The Fund's successful use of options on indices depends upon the
investment adviser's ability to predict the direction of the market and is
subject to various additional risks. The correlation between movements in
the index and the price of the securities being written against is
imperfect and the risk from imperfect correlation increases as the
composition of the Fund's portfolio diverges from the composition of the
relevant index. Accordingly, a decrease in the value of the securities
being written against may not be wholly offset by a gain on the exercise of
a stock index put option held by the Fund. Likewise, if a stock index call
option written by the Fund is exercised, the Fund may incur a loss on the
transaction which is not offset, in whole or in part, by an increase in the
value of the securities being written against, which securities may,
depending on market circumstances, decline in value. For additional
discussion of risks associated with these transactions, see "Investment
Objective and Policies-Limitations on Purchase and Sale of Stock Options,
Options on Indices and Stock and Bond Index Futures-Risks of Options on
Indices" in the Statement of Additional Information.
Options on Foreign Currencies. The Fund is permitted 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. 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 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
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<PAGE>
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.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts to
protect the value of its portfolio against future changes in the level of
currency exchange rates. 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.
The Fund may not use forward contracts to generate income, although the
use of such contracts may incidentally generate income. There is no
limitiation 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 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 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 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 of 1986, as
amended (Internal Revenue Code) for qualification as a regulated investment
company may limit the Fund's ability to engage in transactions in forward
contracts. See "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
Futures Transactions
Stock and Bond Index Futures. The Fund may use listed stock and bond
index futures traded on a commodities exchange or board of trade for
hedging, income enhancement and risk management purposes.
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 in the index is made. See "Investment
Objective and Policies-Listed Stock Index Futures and Related Options" in
the Statement of Additional Information.
The Fund may not purchase or sell stock index futures if, immediately
thereafter, the sum of the amount of aggregate initial margin deposits on
the Fund's existing futures positions and premiums paid for related options
would exceed 5% of the liquidation value of the Fund's total assets.
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<PAGE>
Options on Stock and Bond Index Futures. The Fund may also purchase and
write options on stock and bond index futures for hedging, income
enhancement and risk management purposes. 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 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.
Futures Contracts on Foreign Currencies. The Fund is permitted to buy
and sell futures contracts on foreign currencies (futures contracts) such
as the European Currency Unit, and purchase and write options thereon 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 on foreign currency means the
assumption of a contractual obligation to deliver the specified amount of
foreign currency at a specified price in a specified future month. A
"purchase" of a futures contract means the assumption of a contractual
obligation to acquire the currency called for by the contract at a
specified price in a specified future month. At the time a futures contract
is purchased or sold, the Fund must allocate cash or securities as 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
"mark to market."
The Fund's successful use of futures contracts and options thereon
depends upon the investment advlser's ability to predict the direction of
the market and is subject to various additional risks. The correlation
between movements in the price of a futures contract and the price of the
securities being hedged is imperfect and there is a risk that the value of
the securities being hedged may increase or decrease at a greater rate than
the related futures contract, resulting in losses to the Fund. The use of
these instruments will hedge only the currency risks associated with
investments in foreign securities, not market risks. Certain futures
exchanges or boards of trade have established daily limits on the amount
that the price of a futures contract or option thereon may vary, either up
or down, from the previous day's settlement price. These daily limits may
restrict the Fund's ability to purchase or sell certain futures contracts
or options thereon on any particular day. In addition, if the Fund
purchases futures to hedge against market advances before it can invest in
stocks or bonds in an advantageous manner and the market declines, the Fund
might incur a loss on the futures contract. In addition, the ability of the
Fund to close out a futures position or an option depends on a liquid
secondary market. There is no assurance that liquid secondary markets will
exist for any particular futures contract or option thereon at any
particular time. See "Investment Objective and Policies" in the Statement
of Additional Information.
The Fund's ability to enter into futures contracts and options thereon
may also be limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company.
Special Risks of Hedging and Income Enhancement Strategies
Participation in the options or futures markets and in currency
exchange transactions involves investment risks and transaction costs to
which the Fund would not be subject absent the use of these strategies. If
the investment adviser's prediction of movements in the direction of the
securities, foreign currency 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
options, foreign currency and futures contracts and options on futures
contracts include (1) dependence on the investment adviser's ability to
predict correctly movements in the
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<PAGE>
direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts
and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities;
(4) the possible absence of a liquid secondary market for any particular
instrument at any time; (5) the 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 sell a portfolio security at a disadvantageous time, due to
the need for the Fund to maintain "cover" or to segregate securities in
connection with hedging transactions. See "Investment Objective and
Policies" and "Taxes" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
Borrowing and Securities Lending
The Fund may also borrow an amount equal to no more than 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 its total assets to secure these
borrowings.
The Fund does not presently intend to lend securities except to the
extent that the entry into repurchase agreements may be considered such
lending. See "Investment Objective and Policies-Borrowing" and "Investment
Objective and Policies-Lending of Securities" in the Statement of
Additional Information.
When-Issued and Delayed Delivery Securities
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery
taking place a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. The Fund's Custodian will maintain, in a
segregated account of the Fund, cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than
the Fund's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery
of the securities the value may be more or less than the purchase price and
an increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value.
Repurchase Agreements
The Fund may on occasion enter into repurchase agreements, whereby the
seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually
quite short, possibly overnight or a few days, although it may extend over
a number of months. The resale price is in excess of the purchase price,
reflecting an agreed-upon rate of return effective for the period of time
the Fund's money is invested in the security. The Fund's repurchase
agreements will at all times be fully collateralized in an amount at least
equal to the purchase price, including accrued interest earned on the
underlying securities. The instruments held as collateral are valued daily,
and if the value of instruments declines, the Fund will require additional
collateral. If the seller defaults and the value of the collateral securing
the repurchase agreement declines, the Fund may incur a loss. The Fund
participates in a joint repurchase account with other investment companies
managed by PMF pursuant to an order of the Securities and Exchange
Commission (SEC). See "Investment Objective and Policies-Repurchase
Agreements" in the Statement of Additional Information.
Illiquid Securities
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
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<PAGE>
securities that are not readily marketable. Restricted securities eliglble
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.
The staff of the SEC has 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 the Fund's election, 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."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional
Information.
HOW THE FUND IS MANAGED
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth
below, decides upon matters of general policy. The Fund's Manager conducts
and supervises the daily business operations of the Fund. The Fund's
Subadviser furnishes daily investment advisory services.
For the fiscal year ended December 31, 1993, the Fund's total expenses
as a percentage of average net assets for the Fund's Class A and Class B
shares were .80% and 1.60%, respectively. See "Financial Highlights." No
Class C shares were outstanding during the fiscal year ending December 31,
1993.
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One
Seaport Plaza, New York, New York 10292, is the Manager of the Fund and is
compensated for its services at an annual rate of .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, .35 of 1% of 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. PMF was incorporated in May 1987 under the laws
of the State of Delaware. For the fiscal year ended December 31, 1993, the
Fund paid management fees to PMF of .40% of the Fund's average net assets.
As of March 31, 1994, PMF served as the manager of [37] open-end
investment companies, constituting all of the Prudential Mutual Funds, and
as manager or administrator of [29] closed-end investment companies. These
companies have aggregate assets of approximately [$49] billion.
Under the Management Agreement with the Fund, PMF manages the
investment operations of the Fund and also administers the Fund's corporate
affairs. See "Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory
services in connection with the management of the Fund and is reimbursed by
PMF for its reasonable costs and expenses incurred in providing such
services. Under the Management Agreement, PMF continues to have
responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PIC's performance of such services.
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<PAGE>
The current portfolio manager of the Fund is Warren E. Spitz, a
Managing Director of Prudential Investment Advisors, a unit of PIC. Mr.
Spitz has responsibility for the day-to-day management of the Fund's
portfolio. Mr. Spitz has managed the Fund's portfolio since he joined PIC
in 1987. Mr. Spitz also serves as the portfolio manager of the Prudential
Equity Income Fund and Prudential Series Fund High Dividend Stock
Portfolio.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance
and financial services company.
On October 12, 1993, a lawsuit was instituted against the Fund, PMF,
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 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 Fund.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza,
New York, New York 10292, is a corporation organized under the laws of the
State of Delaware and serves as the distributor of the Class A shares of
the Fund. It is a wholly-owned subsidiary of PMF.
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, is a corporation organized under
the laws of the State of Delaware and serves as the distributor of the
Class B and Class C shares of the Fund. It is an indirect, wholly-owned
subsidiary of Prudential.
Under separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and separate
distribution agreements (the Distribution Agreements), PMFD and Prudential
Securities (collectively, the Distributor) incur the expenses of
distributing the Fund's Class A, Class B and Class C shares, respectively.
These expenses include commissions and account servicing fees paid to, or
on account of, financial advisers of Prudential Securities and Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions
and account servicing fees paid to, or on account of, other financial
institutions (other than national banks) which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs
of Prudential Securities and Prusec associated with the sale of Fund
shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Fund may be sold
in that state only by dealers or other financial institutions which are
registered there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or
service fees to the Distributor as compensation for its distribution and
service activities, not as reimbursement for specific expenses incurred. If
the Distributor's expenses exceed its distribution and service fees, the
Fund will not be obligated to pay any additional expenses. If the
Distributor's expenses are less than such distribution and service fees,
the Distributor will retain its full fees and realize a profit.
Under the Class A Plan, the Fund may pay 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 asset value of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or
the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of up to .25 of 1%) may not
exceed .30 of 1% of the average daily net assets of the Class A shares.
PMFD has agreed to limit its distribution-related fees payable under the
Class A Plan to .25 of 1% of the average daily net assets of the Class A
shares for the fiscal year ending December 31, 1994.
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<PAGE>
For the fiscal year ended December 31, 1993, PMFD received payment of
$573,660 under the Class A Plan as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended for
payment of account servicing fees to financial advisers and other persons
who sell Class A shares. For the fiscal year ended December 31, 1993, PMFD
also received approximately $5,755,000 in initial sales charges.
Under the Class B and Class C Plans, the Fund pays Prudential
Securities for its distribution-related expenses with respect to Class B
and Class C shares at an annual rate of 1% of the average daily net assets
of each of the Class B and Class C shares. The Class B and Class C Plans
provide for the payment to Prudential Securities of (i) an asset-based
sales charge of .75 of 1% of the average daily net assets of each of the
Class B and Class C shares and (ii) a service fee of .25 of 1% of the
average daily net assets of each of the Class B and Class C shares. The
service fee is used to pay for personal service and/or the maintenance of
shareholder accounts. Prudential Securities also receives contingent
deferred sales charges from certain redeeming shareholders. See
"Shareholder Guide-How to Sell Your Shares-Contingent Deferred Sales
Charges."
For the fiscal year ended December 31, 1993, Prudential Securities
incurred distribution expenses of approximately $60,556,900 under the Class
B Plan and received $43,080,963 from the Fund under the Class B Plan. In
addition, Prudential Securities received approximately $4,330,000 in
contingent deferred sales charges from redemptions of Class B shares during
this period. No Class C shares were outstanding during the fiscal year
ending December 31, 1993.
For the fiscal year ended December 31, 1993, the Fund paid distribution
expenses of .20% and 1.00% of the average net assets of the Class A and
Class B shares, respectively. The Fund records all payments made under the
Plans as expenses in the calculation of net investment income. No Class C
shares were outstanding during the fiscal year ended December 31, 1993.
Distribution expenses attributable to the sale of shares of the Fund
will be allocated to each class based upon the ratio of sales of each class
to the sales of all shares of the Fund other than expenses allocable to a
particular class. The distribution fee and sales charge of one class will
not be used to subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan.
Each Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or of a majority of the outstanding shares of the
applicable class of the Fund. The Fund will not be obligated to pay
expenses incurred under any plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates)
may make payments to dealers and other persons which distribute shares of
the Fund. Such payments may be calculated by reference to the net asset
value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor"
in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission
merchant for the Fund, provided that the commissions, fees or other
remuneration it receives are fair and reasonable. See "Portfolio
Transactions and Brokerage" in the Statement of Additional Information.
15
<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio
securities and cash and, in that capacity, maintains certain financial and
accounting books and records pursuant to an agreement with the Fund. Its
mailing address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One,
Edison, New Jersey 08837, serves as Transfer Agent and Dividend Disbursing
Agent and in those capacities maintains certain books and records for the
Fund. PMFS is a wholly-owned subsidiary of PMF. Its mailing address is P.O.
Box 15005, New Brunswick, New Jersey 08906-5005.
- -------------------------------------------------------------------------------
HOW THE FUND VALUES ITS SHARES
- -------------------------------------------------------------------------------
The Fund's net asset value per share or NAV is determined by
subtracting its liabilities from the value of its assets and dividing the
remainder by the number of outstanding shares. NAV is calculated separately
for each class. The Board of Directors has fixed the specific time of day
for the computation of the Fund's net asset value to be as of 4:15 P.M.,
New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under
procedures established by the Fund's Board of Directors. See "Net Asset
Value" in the Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem shares have been received by the Fund or days on
which changes in the value of the Fund's portfolio securities do not
materially affect the NAV. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in
different net asset values and dividends. The NAV of Class B and Class C
shares will generally be lower than the NAV of Class A shares as a result
of the larger distribution-related fee to which Class B and Class C shares
are subject. It is expected, however, that the NAV per share of the three
classes will tend to converge immediately after the recording of dividends
which will differ by approximately the amount of the distribution-related
expense accrual differential among the classes.
- -------------------------------------------------------------------------------
HOW THE FUND CALCULATES PERFORMANCE
- -------------------------------------------------------------------------------
From time to time the Fund may advertise its "total return" (including
"average annual" total return and "aggregate" total return) and "yield" in
advertisements or sales literature. Total return and yield are calculated
separately for Class A, Class B and Class C shares. These figures are based
on historical earnings and are not intended to indicate future performance.
The "total return" shows how much an investment in the Fund would have
increased (decreased) over a specified period of time (i.e., one, five or
ten years or since inception of the Fund) assuming that all distributions
and dividends by the Fund were reinvested on the reinvestment dates during
the period and less all recurring fees. The "aggregate" total return
reflects actual performance over a stated period of time. "Average annual"
total return is a hypothetical rate of return that, if achieved annually,
would have produced the same aggregate total return if performance had been
constant over the entire period. "Average annual" total return smooths out
variations in
16
<PAGE>
performance and takes into account any applicable initial or contingent
deferred sales charges. Neither "average annual" total return nor
"aggregate" total return takes into account any federal or state income
taxes which may be payable upon redemption. The "yield" refers to the
income generated by an investment in the Fund over a one-month or 30-day
period. This income is then "annualized;" that is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund
also may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include data
from Lipper Analytical Services, Inc., other industry publications,
business periodicals, and market indices. See "Performance Information" in
the Statement of Additional Information. The Fund will include performance
data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide-
Shareholder Services-Reports to Shareholders."
- -------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------------------------------------
Taxation of the Fund
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code). Accordingly, the Fund will not be
subject to federal income taxes on its net investment income and capital
gains, if any, that it distributes to its shareholders. See "Taxes" in the
Statement of Additional Information.
Taxation of Shareholders
All dividends out of net investment income, together with distributions
of net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses)
distributed to shareholders will be taxable as such to the shareholders,
whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum long-term capital
gains rate for individual shareholders is 28%. The maximum long-term
capital gains rate for corporate shareholders is currently the same as the
maximum tax rate for ordinary income.
Dividends and distributions are generally taxable to shareholders in
the year in which received. However, certain dividends declared by the Fund
will be treated as received by shareholders on December 31 of the calendar
year in which such dividends occur. This rule applies to dividends declared
by the Fund in October, November or December of a calendar year, payable to
shareholders of record on a date in any such month, if such dividends are
paid during January of the following calendar year.
Dividends received by corporate shareholders are eligible for a
dividends received deduction of 70% to the extent the Fund's income is
derived from qualified dividends received by the Fund from domestic
corporations. Dividends attributable to foreign dividends, interest income,
capital gain net income and gain or loss from other sources are not
eligible for the corporate dividends received deduction. See "Taxes" in the
Statement of Additional Information. Corporate shareholders should consult
their tax advisers regarding other requirements applicable to the dividends
received deduction.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year
and otherwise as short-term capital gain or loss. Any such loss, however,
on shares that are held for six months or less will be treated as long-term
capital loss to the extent of any capital gain distributions received by
the shareholder.
17
<PAGE>
The Fund has obtained an opinion of counsel to the effect that the
conversion of Class B shares into Class A shares does not constitute a
taxable event for U.S. income tax purposes. However, such opinion is not
binding on the Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
Withholding Taxes
Under the Internal Revenue Code, the Fund is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain distributions and
redemption proceeds payable to individuals and certain noncorporate
shareholders who fail to furnish correct tax identification numbers on IRS
Form W-9 (or IRS Form W-8 in the case of certain foreign shareholders) or
who are otherwise subject to backup withholding. Dividends of net
investment income and net short-term capital gains paid to a foreign
shareholder will generally be subject to U.S. withholding tax at the rate
of 30% (or lower treaty rate.)
Dividends and Distributions
The Fund expects to pay dividends of net investment income, if any,
quarterly and make distributions at least annually of any net capital
gains. Dividends paid by the Fund with respect to each class of shares, to
the extent any dividends are paid, will be calculated in the same manner,
at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution charges, generally resulting
in lower dividends for Class B and Class C shares. Distributions of net
capital gains, if any, will be paid in the same amount for each class of
shares. See "How the Fund Values its Shares."
Dividends and distributions will be paid in additional Fund shares
based on the NAV of each class on the record date, or such other date as
the Board of Directors may determine, unless the shareholder elects in
writing not less than five business days prior to the record date to
receive such dividends and distributions in cash. Such election should be
submitted to Prudential Mutual Fund Services, Inc., Attention: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. The Fund
will notify each shareholder after the close of the Fund's taxable year
both of the dollar amount and the taxable status of that year's dividends
and distributions on a per share basis. To the extent that, in a given
year, distributions to shareholders exceed recognized net investment income
and recognized short-term and long-term capital gains for the year,
shareholders will have received a return of capital in respect of such year
and, in an annual statement, will be notified of the amount of any return
of capital for such year. If you hold shares through Prudential Securities,
you should contact your financial adviser to elect to receive dividends and
distributions in cash.
When the Fund goes "ex-dividend," the NAV of each class is reduced by
the amount of the dividend or distribution allocable to each class. If you
buy shares just prior to the ex-dividend date (which generally occurs four
business days prior to the record date), the price you pay will include the
dividend or distribution and a portion of your investment will be returned
to you as a taxable dividend or distribution. You should, therefore,
consider the timing of dividends and distributions when making your
purchases.
- -------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on April 29, 1981. The Fund is
authorized to issue 2 billion shares of common stock, $.01 par value per
share, divided into three classes, designated Class A, Class B and Class C
18
<PAGE>
common stock, which consists of 566,666,666 shares of Class A and
866,666,667 shares of Class B common stock and 566,666,667 shares of Class
C common stock. Each class of common stock represents an interest
in the same assets of the Fund and is identical in all respects except
that (i) each class bears different distribution expenses, (ii) each class
has exclusive voting rights with respect to its distribution and service
plan (except that the Fund has agreed with the SEC in connection with the
offering of a conversion feature on Class B shares to submit any amendment
of the Class A Plan to both Class A and Class B shareholders), (iii) each
class has a different exchange privilege and (iv) only Class B shares have
a conversion feature. See "How the Fund is Managed-Distributor." The Fund
has received an order from the Commission permitting the issuance and sale
of multiple classes of common stock. Currently, the Fund is offering three
classes designated as Class A, Class B and Class C shares. In accordance
with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series of common stock and classes
within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Board may determine.
The Board of Directors may increase or decrease the number of
authorized shares without the approval of shareholders. Shares of the Fund,
when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares are also redeemable at the
option of the Fund under certain circumstances as described under
"Shareholder Guide-How to Sell Your Shares." Each share of each class of
common stock is equal as to earnings, assets and voting privileges, except
as noted above, and each class bears the expenses related to the
distribution of its shares. Except for the conversion feature applicable to
Class B shares, there are no conversion, preemptive or other subscription
rights. In the event of liquidation, each share of the Fund is entitled to
its portion of all of the Fund's assets after all debt and expenses of the
Fund have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for
the election of Directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings
of shareholders unless, for example, the election of Directors is required
to be acted on by shareholders under the Investment Company Act.
Shareholders have certain rights, including the right to call a meeting
upon a vote of 10% of the Fund's outstanding shares for the purpose of
voting on the removal of one or more Directors or to transact any other
business.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information
which has been incorporated by reference herein, does not contain all of
the information set forth in the Registration Statement filed by the Fund
with the SEC under the Securities Act. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined,
without charge, at the office of the SEC in Washington, D.C.
- -------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- -------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities,
Prusec or directly from the Fund through its Transfer Agent, Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020.
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is
$100 for all classes. All minimum investment requirements are waived for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Services" below.
19
<PAGE>
The purchase price is the NAV per share next determined following
receipt of an order by the Transfer Agent or Prudential Securities plus a
sales charge which, at your option, may be imposed either (i) at the time
of purchase (Class A shares) or (ii) on a deferred basis (Class B or Class
C shares). See "Alternative Purchase Plan" below. See also "How the Fund
Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing
for each transaction. Certificates are issued only for full shares.
Shareholders who hold their shares through Prudential Securities will not
receive stock certificates.
The Fund reserves the right to reject any purchase order (including an
exchange) or to suspend or modify the continuous offering of its shares.
See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the fifth business day following the
investment.
Transactions in Fund shares may be subject to postage and handling
charges imposed by your dealer.
Purchase by Wire. For an initial purchase of shares of the Fund by
wire, you must first telephone PMFS at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested:
your name, address, tax identification number, class election, dividend
distribution election, amount being wired and wiring bank. Instructions
should then be given by you to your bank to transfer funds by wire to State
Street Bank and Trust Company (State Street), Boston, Massachusetts,
Custody and Shareholder Services Division, Attention: Prudential Utility
Fund, Inc., specifying on the wire the account number assigned by PMFS and
your name and identifying the sales charge alternative (Class A, Class B or
Class C shares).
If you arrange for receipt by State Street of Federal Funds prior to
4:15 P.M., New York time, on a business day, you may purchase shares of the
Fund as of that day.
In making a subsequent purchase order by wire, you should wire State
Street directly and should be sure that the wire specifies Prudential
Utility Fund, Inc., Class A, Class B or Class C shares and your name and
individual account number. It is not necessary to call PMFS to make
subsequent purchase orders utilizing Federal Funds. The minimum amount
which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and Class C
shares) which allows you to choose the most beneficial sales charge
structure for your individual circumstances given the amount of the
purchase, the length of time you expect to hold the shares and other
relevant circumstances (Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------ ----------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 5% .30 of 1% (Currently Initial sales charge waived or
of the public offering price being charged at reduced for certain purchases
a rate of .25 of 1%)
Class B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser approximately seven years after
of the amount invested or the purchase
redemption proceeds; declines to
zero after six years
Class C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another
the amount invested or the class
redemption proceeds on
redemptions made within one year
of purchase
</TABLE>
20
<PAGE>
The three classes of shares represent an interest in the same portfolio
of investments of the Fund and have the same rights, except that (i) each
class bears the separate expenses of its Rule 12b-1 distribution and
service plan, (ii) each class has exclusive voting rights with respect to
its plan (except as noted under the heading "General Information-
Description of Common Stock"), and (iii) only Class B shares have a
conversion feature. The three classes also have separate exchange
privileges. See "How to Exchange Your Shares" below. The income
attributable to each class and the dividends payable on the shares of each
class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee
which will generally cause them to have higher expense ratios and to pay
lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund
will receive different compensation for selling Class A, Class B and Class
C shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of
purchase or redemption) and distribution-related fees, as noted above, (3)
whether you qualify for any reduction or waiver of any applicable sales
charge, (4) the various exchange privileges among the different classes of
shares (see "How to Exchange Your Shares" below) and (5) the fact that
Class B shares automatically convert to Class A shares approximately seven
years after purchase (see "Conversion Feature-Class B Shares" below).
The following is provided to assist you in determining which purchase
alternative best suits your individual circumstances and is based on
current fees and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years
and do not qualify for a reduced sales charge on Class A shares, since
Class A shares are subject to an initial sales charge of 5% and Class B
shares are subject to a CDSC of 5% which declines to zero over a 6 year
period, you should consider purchasing Class C shares over either Class A
or Class B shares.
If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because
all of your money would be invested initially in the case of Class B
shares, you should consider purchasing Class B shares over either Class A
or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be
more advantageous for you to purchase Class A shares over either Class B or
Class C shares regardless of how long you intend to hold your investment.
However, unlike Class B and Class C shares, you would not have all of your
money invested initially because the sales charge on Class A shares is
deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and
you purchase Class B or Class C shares, you would have to hold your
investment for more than 6 years in the case of Class B and Class C shares
for the higher cumulative annual distribution-related fee on those shares
to exceed the initial sales charge plus cumulative annual distribution-
related fees on Class A shares. This does not take into account the time
value of money, which further reduces the impact of the higher Class B or
Class C distribution-related fees on the investment, fluctuations in net
asset value, the effect of the return on the investment over this period of
time or redemptions during which the CDSC is applicable.
All purchases of $1 million or more, either as part of a single
investment or under Rights of Accumulation or Letters of Intent, must be
for Class A shares. See "Reduction and Waiver of Initial Sales Charges"
below.
Class A Shares
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount
invested) as shown in the following table:
21
<PAGE>
Sales Charge as Sales Charge as Dealer Concession
Percentage of Percentage of as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- -------------------- --------------- --------------- -----------------
Less than $25,000 ...... 5.00% 5.26% 4.75%
$25,000 to $49,999 ..... 4.50 4.71 4.25
$50,000 to $99,999 ..... 4.00 4.17 3.75
$100,000 to $249,999 ... 3.25 3.36 3.00
$250,000 to $499,999 ... 2.50 2.56 2.40
$500,000 to $999,999 ... 2.00 2.04 1.90
$1,000,000 and above ... None None None
Selling dealers may be deemed to be underwriters, as that term is
defined in the Securities Act.
Reduction and Waiver of Initial Sales Charges. Reduced sales charges
are available through Rights of Accumulation and Letters of Intent. Shares
of the Fund and shares of other Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege)
may be aggregated to determine the applicable reduction. See "Reduction and
Waiver of Initial Sales Charges-Class A Shares" in the Statement of
Additional Information.
Class A shares may be purchased at NAV, without payment of an initial
sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (Benefit Plans), provided that the plan has existing
assets of at least $1 million invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the
exchange privilege) or 1,000 eligible employees or members. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent and
for which the Transfer Agent does individual account record keeping (Direct
Account Benefit Plans) and Benefit Plans sponsored by PSI or its
subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from
such plans to the participant. Additional information concerning the
reduction and waiver of initial sales charges is set forth in the Statement
of Additional Information.
In addition, Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) Directors
and officers of the Fund and other Prudential Mutual Funds, (b) employees
of Prudential Securities and PMF and their subsidiaries and members of the
families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special
agents of Prudential and its subsidiaries and all persons who have retired
directly from active service with Prudential or one of its subsidiaries,
(d) registered representatives and employees of dealers who have entered
into a selected dealer agreement with Prudential Securities, provided that
purchases at NAV are permitted by such person's employer and (e) investors
who have a business relationship with a financial adviser who joined
Prudential Securities from another investment firm, provided that (i) the
purchase is made within 90 days of the commencement of the financial
adviser's employment at Prudential Securities, (ii) the purchase is made
with proceeds of a redemption of shares of any open-end, non-money market
fund sponsored by the financial adviser's previous employer (other than a
fund which imposes a distribution or service fee of .25 of 1% or less) on
which no deferred sales load, fee or other charge was imposed on redemption
and (iii) the financial adviser served as the client's broker on the
previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or
waiver of the sales charge. The reduction or waiver will be granted subject
to confirmation of your entitlement. No initial sales charges are imposed
upon Class A shares purchased upon the reinvestment of dividends and
distributions. See "Purchase and Redemption of Fund Shares-Reduction and
Waiver of Initial Sales Charges-Class A Shares" in the Statement of
Additional Information.
22
<PAGE>
Class B and Class C Shares
The offering price of Class B and Class C shares for investors choosing
one of the deferred sales charge alternatives is the NAV per share next
determined following receipt of an order by the Transfer Agent or
Prudential Securities. Although there is no sales charge imposed at the
time of purchase, redemptions of Class B and Class C shares may be subject
to a CDSC. See "How to Sell Your Shares-Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
You can redeem your shares at any time for cash at the NAV per share
next determined after the redemption request is received in proper form by
the Transfer Agent or Prudential Securities. See "How the Fund Values its
Shares." In certain cases, however, redemption proceeds will be reduced by
the amount of any applicable contingent deferred sales charge, as described
below. See "Contingent Deferred Sales Charges" below.
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares by contacting your Prudential Securities financial
adviser. If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be received by the Transfer Agent in
order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written
evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. All correspondence and documents
concerning redemptions should be sent to the Fund in care of its Transfer
Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be
paid to a person other than the record owner, (c) are to be sent to an
address other than the address on the Transfer Agent's records, or (d) are
to be paid to a corporation, partnership, trust or fiduciary, the
signature(s) on the redemption request and on the certificates, if any, or
stock power must be guaranteed by an "eligible guarantor institution." An
"eligible guarantor institution" includes any bank, broker, dealer or
credit union. The Transfer Agent reserves the right to request additional
information from, and make reasonable inquiries of, any eligible guarantor
institution. For clients of Prusec, a signature guarantee may be obtained
from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
Payment for shares presented for redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate
and/or written request, except as indicated below. Such payment may be
postponed or the right of redemption suspended at times (a) when the New
York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on such Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets,
or (d) during any other period when the SEC, by order, so permits, provided
that applicable rules and regulations of the SEC shall govern as to whether
the conditions described in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed
until the Fund or its Transfer Agent has been advised that the purchase
check has been honored, up to 10 calendar days from the time of receipt of
the purchase check by the Transfer Agent. Such delay may be avoided by
purchasing shares by wire or by certified or official bank check.
Redemption in Kind. If the Board of Directors determines that it would
be detrimental to the best interests of the remaining shareholders of the
Fund to make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by a distribution in kind of
securities from the investment portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the SEC. Securities will be readily
marketable and will be valued in the same manner as a regular redemption.
See "How the Fund Values its Shares." If your shares are redeemed in kind,
you would incur
23
<PAGE>
transaction costs in converting the assets into cash. The Fund, however,
has elected to be governed by Rule 18f-1 under the Investment Company Act,
under which the Fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
Involuntary Redemption. In order to reduce expenses of the Fund, the
Board of Directors may redeem all of the shares of any shareholder, other
than a shareholder which is an IRA or other tax-deferred retirement plan,
whose account has a net asset value of less than $500 due to a redemption.
The Fund will give such shareholders 60 days' prior written notice in which
to purchase sufficient additional shares to avoid such redemption. No
contingent deferred sales charge will be imposed on any involuntary
redemption.
30-day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion
or all of the proceeds of such redemption in shares of the Fund at the NAV
next determined after the order is received, which must be within 30 days
after the date of the redemption. No sales charge will apply to such
repurchases. You will receive pro rata credit for any contingent deferred
sales charge paid in connection with the redemption of your shares. You
must notify the Fund's Transfer Agent, either directly or through
Prudential Securities or Prusec, at the time the repurchase privilege is
exercised that you are entitled to credit for the contingent deferred sales
charge previously paid. Exercise of the repurchase privilege will not
generally affect federal income tax treatment of any gain realized upon
redemption. If the redemption resulted in a loss, some or all of the loss,
depending on the amount reinvested, will not be allowed for federal income
tax purposes.
Contingent Deferred Sales Charges
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period.
Class C shares redeemed within one year of purchase will be subject to a 1%
CDSC. The CDSC will be deducted from the redemption proceeds and reduce the
amount paid to you. The CDSC will be imposed on any redemption by you which
reduces the current value of your Class B or Class C shares of the Fund to
an amount which is lower than the amount of all payments by you for shares
during the preceding six years, in the case of Class B shares, and one
year, in the case of Class C shares. A CDSC will be applied on the lesser
of the original purchase price or the current value of the shares being
redeemed. Increases in the value of your shares or shares purchased through
reinvestment of dividends or distributions are not subject to a CDSC. The
amount of any CDSC will be paid to and retained by the Distributor. See
"How the Fund is Managed-Distributor" and "Waiver of the Contingent
Deferred Sales Charges" below.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC
applicable to redemptions of Class B shares:
Contingent Deferred
Sales
Charge as a Percentage
Year Since Purchase of Dollars Invested or
Payment Made Redemption Proceeds
------------ -------------------
First ...................................................... 5.0%
Second ..................................................... 4.0%
Third ...................................................... 3.0%
Fourth ..................................................... 2.0%
Fifth ...................................................... 1.0%
Sixth ...................................................... 1.0%
Seventh .................................................... None
24
<PAGE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible
rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value
above the total amount of payments for the purchase of Fund shares made
during the preceding six years (five years for shares purchased prior to
January 22, 1990); then of amounts representing the cost of shares
purchased six years prior to the redemption; then of amounts representing
the cost of shares acquired prior to July 1, 1985; and finally, of amounts
representing the cost of shares held for the longest period of time within
the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share
for a cost of $1,000. Subsequently, you acquired 5 additional Class B
shares through dividend reinvestment. During the second year after the
purchase you decided to redeem $500 of your investment. Assuming at the
time of the redemption the NAV had appreciated to $12 per share, the value
of your Class B shares would be $1,260 (105 shares at $12 per share). The
CDSC would not be applied to the value of the reinvested dividend shares
and the amount which represents appreciation ($260). Therefore, $240 of the
$500 redemption proceeds ($500 minus $260) would be charged at a rate of 4%
(the applicable rate in the second year after purchase) for a total CDSC of
$9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on
the redemption of shares.
Waiver of the Contingent Deferred Sales Charge-Class B Shares. The CDSC
will be waived in the case of a redemption following the death or
disability of a shareholder or, in the case of a trust account, following
the death or the disability of the grantor. The waiver is available for
total or partial redemptions of shares owned by a person, either
individually or in joint tenancy (with rights of survivorship), at the time
of death or initial determination of disability, provided that the shares
were purchased prior to death or disability.
The CDSC will also be waived in the case of a total or partial
redemption in connection with certain distributions made without penalty
under the Internal Revenue Code from a tax-deferred retirement plan, an IRA
or Section 403(b)(7) custodial account. These distributions include a
lump-sum or other distribution after retirement, or for an IRA or Section
403(b)(7) custodial account, after attaining age 59-1/2, a tax-free return
of an excess contribution or plan distributions following the death or
disability of the shareholder (provided that the shares were purchased
prior to death or disability). The waiver does not apply in the case of a
tax-free rollover or transfer of assets, other than one following a
separation from service. In the case of Direct Account and PSI or
Subsidiary Prototype Benefit Plans, the CDSC will be waived on redemptions
which represent borrowings from such plans. Shares purchased with amounts
used to repay a loan from such plans on which a CDSC was not previously
deducted will thereafter be subject to a CDSC without regard to the time
such amounts were previously invested. In the case of a 401(k) plan, the
CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and
from which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC. The waiver will be granted subject to
confirmation of your entitlement.
A quantity discount may apply to redemptions of Class B shares
purchased prior to , 1994. See "Purchase and Redemption of Fund
Shares-Quantity Discount-Class B Shares Purchased Prior to , 1994"
in the Statement of Additional Information.
CONVERSION FEATURE-CLASS B SHARES
Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. Conversions will
occur during the month following each calendar quarter and will be effected
at relative net
25
<PAGE>
asset value without the imposition of any additional sales charge. It is
currently anticipated that conversions will occur on the first Friday of
the month following each calendar quarter or, if not a business day, on
the next Friday of the month.
Since the Fund tracks amounts paid rather than the number of shares
bought on each purchase of Class B shares, the number of Class B shares
eligible to convert to Class A shares (excluding shares acquired through
the automatic reinvestment of dividends and other distributions) (the
Eligible Shares) will be determined on each conversion date in accordance
with the following formula: (i) the ratio of (a) the amounts paid for Class
B shares purchased at least [seven] years prior to the conversion date to
(b) the total amount paid for all Class B shares purchased and then held in
your account (ii) multiplied by the total number of Class B shares then in
your account. Each time any Eligible Shares in your account convert to
Class A shares, all shares or amounts representing Class B shares then in
your account that were acquired through the automatic reinvestment of
dividends and other distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class
B shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately [seven] years
before such conversion date. For example, if 100 shares were initially
purchased at $10 per share (for a total of $1,000) and a second purchase of
100 shares was subsequently made at $11 per share (for a total of $1,100),
95.24 shares would convert approximately [seven] years from the initial
purchase (i.e., $1,000 divided by $2,100 (47.62%) multiplied by 200 shares
equals 95.24 shares). The Manager reserves the right to modify the formula
for determining the number of Eligible Shares in the future as it deems
appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares
than for Class B shares, the per share net asset value of the Class A shares
may be higher than that of the Class B shares at the time of conversion.
Thus, although the aggregate dollar value will be the same, you may receive
fewer Class A shares than Class B shares converted. See "How the Fund
Values its Shares."
For purposes of calculating the applicable holding period for
conversons, all payments for Class B shares during a month will be deemed
to have been made on the last day of the month, or for Class B shares
acquired through exchange, or a series of exchanges, on the last day of the
month in which the original payment for purchases of such Class B shares
was made. For Class B shares previously exchanged for shares of a money
market fund, the time period during which such shares were held in the
money market fund will be excluded. For example, Class B shares held in a
money market fund for one year will not convert to Class A shares until
approximately eight years from purchase. For purposes of measuring the time
period during which shares are held in a money market fund, exchanges will
be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration
of the conversion period applicable to the original purchase of such
shares. It is currently anticipated that the first conversion of Class B
shares will occur in or about January, 1995. At that time all amounts
representing Class B shares then outstanding beyond 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 your
account.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service that (i) the
dividends and other distributions paid on Class A, Class B and Class C
shares will not constitute "preferential dividends" under the Internal
Revenue Code and (ii) the conversion of shares does not constitute a
taxable event. The conversion of Class B shares into Class A shares may be
suspended if such opinions or rulings are no longer available. If
conversions are suspended, Class B shares of the Fund will continue to be
subject, possibly indefinitely, to their higher annual distribution and
service fee.
26
<PAGE>
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund, you have an exchange privilege with
certain other Prudential Mutual Funds (the Exchange Privilege), including
one or more specified money market funds, subject to the minimum investment
requirements of such funds. Class A, Class B and Class C shares of the Fund
may be exchanged for Class A, Class B and Class C shares, respectively, of
another fund on the basis of the relative NAV. Any applicable CDSC payable
upon the redemption of shares exchanged will be calculated from the first
day of the month after the initial purchase, excluding the time that shares
were held in a money market fund. Class B and Class C shares may not be
exchanged into money market funds other than Prudential Special Money
Market Fund. For purposes of calculating the holding period applicable to
the Class B conversion feature, the time period during which Class B shares
were held in a money market fund will be excluded. See "Conversion
Feature-Class B Shares" above. If your investment in shares of Prudential
Mutual Funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) reaches $1 million and you then hold
Class B and/or Class C shares of the Fund which are free of CDSC, you will
be so notified and offered the opportunity to exchange those shares for
Class A shares of the Fund without the imposition of any sales charge. In
the case of tax-exempt shareholders, if no response is received within 60
days of the mailing of such notice, eligible Class B and/or Class C shares
will be automatically exchanged for Class A shares. All other shareholders
must affirmatively elect to have their eligible Class B and/or Class C
shares exchanged for Class A shares. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account-Exchange Privilege" in the Statement of Additional Information.
In order to exchange shares by telephone, you must authorize the
telephone exchange privilege on your initial application form or by written
notice to the Transfer Agent and hold shares in non-certificate form.
Thereafter, you may call the Fund at (800) 225-1852 to execute a telephone
exchange of shares, on weekdays, except holidays, between the hours of 8:00
A.M. and 6:00 P.M., New York time. For your protection and to prevent
fraudulent exchanges, your telephone call will be recorded and you will be
asked to provide your personal identification number. A written
confirmation of the exchange transaction will be sent to you. Neither the
Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine
under the foregoing procedures. All exchanges will be made on the basis of
the relative NAV of the two funds next determined after the request is
received in good order. The Exchange Privilege is available only in states
where the exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange
your shares by contacting your Prudential Securities financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown
on the face of the certificates, must be returned in order for the shares
to be exchanged. See "How to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual
Fund Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone
exchange of shares may be difficult to implement and you should make
exchanges by mail by writing to Prudential Mutual Fund Services, Inc. at
the address noted above.
The Exchange Privilege may be modified or terminated at any time on 60
days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund,
you can take advantage of the following additional services and privileges:
27
<PAGE>
*Automatic Reinvestment of Dividends and/or Distributions Without a
Sales Charge. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not
less than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your
financial adviser.
*Automatic Savings Accumulation Plan (ASAP). Under ASAP, you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account
(including a Command Account). For additional information about this
service, you may contact your Prudential Securities financial adviser,
Prusec registered representative or the Transfer Agent directly.
*Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue
Code are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit
either self-direction of accounts by participants, or a pooled account
arrangement. Information regarding the establishment of these plans, the
administration, custodial fees and other details is available from
Prudential Securities or the Transfer Agent. If you are considering
adopting such a plan, you should consult with your own legal or tax adviser
with respect to the establishment and maintenance of such a plan.
*Systematic Withdrawal Plan. A systematic withdrawal plan is available
to shareholders which provides for monthly or quarterly checks. Withdrawals
of Class B and Class C shares may be subject to a CDSC. See "How to Sell
Your Shares-Contingent Deferred Sales Charges" above.
*Reports to Shareholders. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited
by independent accountants. In order to reduce duplicate mailing and
printing expenses, the Fund will provide one annual and semi-annual
shareholder report and prospectus per household. You may request additional
copies of such reports by calling (800) 225-1852 or by writing to the Fund
at One Seaport Plaza, New York, New York 10292. In addition, monthly
unaudited financial data is available upon request from the Fund.
*Shareholder Inquiries. Inquiries should be addressed to the Fund at
One Seaport Plaza, New York, New York 10292, or by telephone at (800)
225-1852 (toll-free) or, from outside the U.S.A., at (908) 417-7555
(collect).
For additional information regarding the services and privileges
described above, see "Shareholder Investment Account" in the Statement of
Additional Information.
28
<PAGE>
- -------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more
information on the Prudential Mutual Funds, including charges and expenses,
contact your Prudential Securities financial adviser or Prusec registered
representative or telephone the Fund at (800) 225-1852 for a free
prospectus. Read the prospectus carefully before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible\'AE Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
* Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
* Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
* Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
* Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has
been authorized to give any information or to make any
representations, other than those contained in this
Prospectus, in connection with the offer contained
herein, and, if given or made, such other information or
representations must not be relied upon as having been
authorized by the Fund or the Distributor. This
Prospectus does not constitute an offer by the Fund or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS.............................. 2
FUND EXPENSES................................ 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE FUND INVESTS......................... 7
Investment Objective and Policies.......... 7
Hedging and Income Enhancement Strategies.. 8
Other Investments and Policies............. 12
Investment Restrictions.................... 13
HOW THE FUND IS MANAGED...................... 13
Manager.................................... 13
Distributor................................ 14
Portfolio Transactions..................... 15
Custodian and Transfer and
Dividend Disbursing Agent................ 16
HOW THE FUND VALUES ITS SHARES............... 16
HOW THE FUND CALCULATES PERFORMANCE.......... 16
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 17
GENERAL INFORMATION.......................... 18
Description of Common Stock................ 18
Additional Information..................... 19
SHAREHOLDER GUIDE............................ 19
How to Buy Shares of the Fund.............. 19
Alternative Purchase Plan.................. 20
How to Sell Your Shares.................... 23
Conversion Feature - Class B Shares........ 25
How to Exchange Your Shares................ 27
Shareholder Services....................... 27
THE PRUDENTIAL MUTUAL FUND FAMILY............A-1
________________________________________________
150A 440133P
________________________________________________
Class A: 743911-20-8
CUSIP Nos.: Class B: 743911-10-9
Class C:
________________________________________________
Prudential
Utility
Fund, Inc.
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
PROSPECTUS
, 1994
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
Statement of Additional Information
, 1994
Prudential Utility Fund, Inc., (the Fund) is an open-end, diversified
management investment company. Its investment objective is to seek high
current income and moderate capital appreciation through investment in
equity and debt securities of utility companies. "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 common stocks of utility companies that the Subadviser
believes have the potential for high expected return; however, the Fund may
invest primarily in 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 such sectors or securities markets as a whole warrant,
the Fund may temporarily be primarily invested in money market instruments.
See "Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and
its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus dated , 1994,
a copy of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus
---- ----------
General Information .................................. B-2 18
Investment Objective and Policies .................... B-2 7
Investment Restrictions .............................. B-11 13
Directors and Officers ............................... B-13 13
Manager .............................................. B-15 13
Distributor .......................................... B-16 14
Portfolio Transactions and Brokerage ................. B-18 15
Purchase and Redemption of Fund Shares ............... B-19 19
Shareholder Investment Account ....................... B-21 19
Net Asset Value ...................................... B-24 16
Taxes ................................................ B-25 17
Performance Information .............................. B-26 16
Custodian and Transfer and Dividend Disbursing Agent
and Independent Accountants ........................ B-27 16
Financial Statements ................................. B-29 -
Report of Independent Accountants .................... B-39 -
- -------------------------------------------------------------------------------
MF105B
<PAGE>
GENERAL INFORMATION
At a special meeting held on August 24, 1994, shareholders approved an
amendment to the Fund's Articles of Incorporation to change the Fund's name
from Prudential-Bache Utility Fund, Inc. to Prudential Utility Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
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. "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 common
stocks of utility companies that the Subadviser believes have the potential
for high expected return; however, the Fund may invest primarily in
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
such sectors or securities markets as a whole warrant, the Fund may
temporarily be primarily invested in money market instruments.
Borrowing
The Fund may borrow money for temporary, extraordinary or emergency
purposes or for the clearance of transactions. Such borrowings may not
exceed 20% of the value of the Fund's total assets when the loan is made.
The Fund may pledge up to 20% of its total assets to secure such
borrowings.
Limitations on Purchase and Sale of Stock Options, Options on Stock
Indices, Stock and Bond Index Futures and Options Thereon.
Options on Equity Securities
The Fund may purchase put options only on equity securities held in its
portfolio and write call options on such securities only if they are
covered, and such call options must remain covered so long as the Fund is
obligated as a writer. The Fund has undertaken with certain state
securities commissions that, so long as shares of the Fund are registered
in those states, it will not (a) write puts having aggregate exercise
prices greater than 25% of net assets; or (b) purchase (i) put options on
stocks not in the Fund's portfolio, (ii) put options on stock indices or
(iii) call options on stocks or stock indices if, after such purchase, the
aggregate premiums paid for such options currently owned would exceed 10%
of the Fund's net assets; provided, however, that the Fund could purchase
put options on stocks held by the Fund if after such purchase the aggregate
premium paid for such options does not exceed 20% of the Fund's total
assets.
The Fund may purchase put and call options and write covered call
options on equity [and debt] securities traded on securities exchanges, on
NASDAQ or in the over-the-counter market (OTC Options).
The Fund may purchase and write put and call options on stock indices
traded on securities exchanges, on NASDAQ or in the over-the-counter
market.
Call Options on Stock. The Fund may, from time to time, write call
options on its portfolio securities. The Fund may write only call options
which are "covered," meaning that the Fund either owns the underlying
security 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 currently held in its portfolio. In addition, the Fund
will not permit the call to become uncovered prior to the expiration of the
option or termination through a closing purchase transaction as described
below. If the Fund writes a call option, the purchaser of the option has
the right to buy (and the Fund has the obligation to sell) the underlying
security at the exercise price throughout the term of the option. The
amount paid to the Fund by the purchaser of the option is the "premium."
The Fund's obligation to deliver the underlying security against payment of
the exercise price would terminate either upon expiration of the option or
earlier if the Fund were to effect a "closing purchase transaction" through
the purchase of an equivalent option on an exchange. There can be no
assurance that a closing purchase transaction can be effected.
The Fund would not be able to effect a closing purchase transaction
after it had received notice of exercise. In order to write a call option,
the Fund is required to comply with the rules of The Options Clearing
Corporation and the various exchanges with respect to collateral
requirements. The Fund may not purchase call options on individual stocks
except in connection with a closing purchase transaction. It is possible
that the cost of effecting a closing purchase transaction may be greater
than the premium received by the Fund for writing the option.
B-2
<PAGE>
Put Options on Stock. The Fund may also purchase put and call options.
If the Fund purchases a put option, it has the option to sell a given
security at a specified price at any time during the term of the option. If
the Fund purchases a call option, it has the option to buy a security at a
specified price at any time during the term of the option.
Purchasing put options may be used as a portfolio investment strategy
when the investment adviser perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put
option acts as an insurance policy, as it protects against significant
downward price movement while it allows full participation in any upward
movement. If the Fund is holding a security which it feels has strong
fundamentals, but for some reason may be weak in the near term, it may
purchase a put on such security, thereby giving itself the right to sell
such security at a certain strike price throughout the term of the option.
Consequently, the Fund will exercise the put only if the price of such
security falls below the strike price of the put. The difference between
the put's strike price and the market price of the underlying security on
the date the Fund exercises the put, less transaction costs, will be the
amount by which the Fund will be able to hedge against a decline in the
underlying security. If during the period of the option the market price
for the underlying security remains at or above the put's strike price, the
put will expire worthless, representing a loss of the price the Fund paid
for the put, plus transaction costs. If the price of the underlying
security increases, 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 for which the put may be sold prior to its expiration.
Stock Index Options. Except as described below, the Fund will write
call options on indices only if on such date it holds a portfolio of stocks
at least equal to the value of the index times the multiplier times the
number of contracts. When the Fund writes a call option on a broadly-based
stock market index, the Fund will segregate or put into escrow with its
Custodian, or pledge to a broker as collateral for the option, any
combination of cash, cash equivalents or "qualified securities" with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts.
If the Fund has written an option on an industry or market segment
index, it will segregate or put into escrow with its Custodian, or pledge
to a broker as collateral for the option, one or more "qualified
securities," all of which are stocks of issuers in such industry or market
segment, with a market value at the time the option is written of not less
than 100% of the current index value times the multiplier times the number
of contracts.
If at the close of business on any day the market value of such
qualified securities so segregated, escrowed or pledged falls below 100% of
the current index value times the multiplier times the number of contracts,
the Fund will so segregate, escrow or pledge an amount in cash, Treasury
bills or other high-grade short-term obligations equal in value to the
difference. In addition, when the Fund writes a call on an index which is
in-the-money at the time the call is written, the Fund will segregate with
its Custodian or pledge to the broker as collateral cash, U.S. Government
or other high-grade short-term debt obligations equal in value to the
amount by which the call is in-the-money times the multiplier times the
number of contracts. Any amount segregated pursuant to the foregoing
sentence may be applied to the Fund's obligation to segregate additional
amounts in the event that the market value of the qualified securities
falls below 100% of the current index value times the multiplier times the
number of contracts. A "qualified security" is an equity security which is
listed on a securities exchange or listed on NASDAQ against which the Fund
has not written a stock call option and which has not been hedged by the
Fund by the sale of stock index futures. However, if the Fund holds a call
on the same index as the call written where the exercise price of the call
held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other high-grade
short-term obligations in a segregated account with its Custodian, it will
not be subject to the requirements described in this paragraph.
Stock and Bond Index Futures. The Fund will purchase and sell stock and
bond index futures contracts as a hedge against changes resulting from
market conditions in the values of securities which are held in the Fund's
portfolio or which it intends to purchase or when they are economically
appropriate for the reduction of risks inherent in the ongoing management
of the Fund. In instances involving the purchase of stock or bond index
futures contracts by the Fund, an amount of cash, cash equivalents and U.S.
Government securities, equal to the market value of the futures contracts,
will be deposited in a segregated account with the Fund's Custodian and/or
in a margin account with a broker to collateralize the position and thereby
insure that the use of such futures is unleveraged.
Pursuant to the requirements of 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.
Options on Stock and Bond Index Futures Contracts. In the case of
options on stock or bond index futures, the holder of the option pays a
premium and receives the rights, 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
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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.
Limitations on the Purchase and Sale of Stock and Bond Index Futures
and Options on Stock and Bond Index Futures. Under regulations of the
Commodity Exchange Act, investment companies registered under the
Investment Company Act of 1940, as amended (the Investment Company Act),
are exempt from the definition of "commodity pool operator", subject to
compliance with certain conditions. The exemption is conditioned upon the
Fund's purchasing and selling futures contracts and options thereon for
bona fide hedging transactions, except that the Fund may purchase and sell
futures and options thereon for any other purpose to the extent that the
aggregate initial margin and option premiums do not exceed 5% of the
liquidation value of the Fund's total assets.
Risks of Transactions in Stock Options. Writing of options involves the
risk that there will be no market in which to effect a closing transaction.
An exchange traded option may be closed out only on an exchange, board of
trade or other trading facility which provides a secondary market for an
option of the same series. Although the Fund will generally purchase or
write only those 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 option, or at any
particular time, and for some options no secondary market on an exchange
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 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.
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. When the Fund writes an OTC option, it generally will be able to
close out the OTC option prior to its expiration only by entering into a
closing purchase transaction with the dealer with which the Fund originally
wrote the OTC option. Any such cancellation, if agreed to, may require the
Fund to pay a premium to the counterparty. While the Fund will enter into
OTC options only with dealers which agree to, and which are expected to be
capable of, entering into closing transactions with the Fund, there can be
no assurance that the Fund will be able to liquidate an OTC option at a
favorable price at any time prior to expiration. Until the Fund is able to
effect a closing purchase transaction in a covered OTC call option the Fund
has written, it will not be able to liquidate securities used as cover
until the option expires or is exercised or different cover is substituted.
Alternatively, the Fund could write an OTC call option to, in effect, close
an existing OTC call option or write an OTC put option to close its
position on an OTC put option. However, the Fund would remain exposed to
each counterparty's credit risk on the put or call 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 would effectively close
an existing position. In the event of insolvency of the counterparty, the
Fund may be unable to liquidate an OTC option.
The Fund may also purchase a "protective put," i.e., a put option
acquired 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 [or bond] 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, the Subadviser 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 the Fund's election, to unwind the OTC option.
The exercise of such an option ordinarily would involve the payment by the
Fund of
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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."
Risks of Options on Indices. The Fund's purchase and sale of options on
indices will be subject to risks described above under "Risks of
Transactions in Stock Options." In addition, the distinctive
characteristics of options on indices create certain risks that are not
present with stock options.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular security, whether
the Fund will realize a gain or loss on the purchase or sale of an option
on an index depends upon movements in the level of prices in the market in
which the securities comprising the index are traded generally or in an
industry or market segment rather than movements in the price of a
particular security. Accordingly, successful use by the Fund of options on
indices would be subject to the investment adviser's ability to predict
correctly movements in the direction of the market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual securities. The investment
adviser currently uses such techniques in conjunction with the management
of other mutual funds.
Index prices may be distorted if trading of certain securities included
in the index is interrupted. Trading in index options also may be
interrupted in certain circumstances, such as if trading were halted in a
substantial number of securities included in the index. If this occurred,
the Fund would not be able to close out options which it had purchased or
written and, if restrictions on exercise were imposed, may be unable to
exercise an option it holds, which could result in substantial losses to
the Fund. It is the Fund's policy to purchase or write options only on
indices which include a number of securities sufficient to minimize the
likelihood of a trading halt in the index, for example, the S&P 100 or S&P
500 index option.
Trading in index options commenced in April 1983 with the S&P 100
option (formerly called the CBOE 100). Since that time a number of
additional index option contracts have been introduced including options on
industry indices. Although the markets for certain index option contracts
have developed rapidly, the markets for other index options are still
relatively illiquid. The ability to establish and close out positions on
such options will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop in all
index option contracts. The Fund will not purchase or sell any index option
contract unless and until, in the investment adviser's opinion, the market
for such options has developed sufficiently that the risk in connection
with these transactions is no greater than the risk in connection with
options on stocks.
Special Risks of Writing Calls on Indices. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot
determine the amount of its settlement obligations in advance and, unlike
call writing on specific stocks, cannot provide in advance for, or cover,
its potential settlement obligations by acquiring and holding the
underlying securities. However, the Fund will write call options on indices
only under the circumstances described above under "Limitations on the
Purchase and Sale of Stock Options, Options on Stock Indices, Stock and
Bond Index Futures and Options Thereon".
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of a particular index and, therefore,
the Fund bears the risk that the price of the securities held by the Fund
may not increase as much as the index. In such event, the Fund would bear a
loss on the call which is not completely offset by movements in the price
of the Fund's portfolio. It is also possible that the index may rise when
the Fund's portfolio does not rise. If this occurred, the Fund would
experience a loss on the call which is not offset by an increase in the
value of its portfolio and might also experience a loss in its portfolio.
However, because the value of a diversified portfolio will, over time, tend
to move in the same direction as the market, movements in the value of the
Fund in the opposite direction as the market would be likely to occur for
only a short period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy
the exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if the Fund
fails to anticipate an exercise, it may have to borrow from a bank (in
amounts not exceeding 20% of the Fund's total assets) pending settlement of
the sale of securities in its portfolio and would incur interest charges
thereon.
When the Fund has written a call, there is also a risk that the market
may decline between the time the Fund has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to sell securities in its
portfolio. As with stock options, the Fund will not learn that an index
option has been exercised until the day following the exercise date but,
unlike a call on stock where the Fund would be able to deliver the
underlying securities in settlement, the Fund may have to sell part of its
portfolio in order to make settlement in cash, and the price of such
securities might decline before they can be sold. This timing risk makes
certain strategies involving more than one option substantially more risky
with index options than with stock or bond options. For example, even if an
index call which the Fund has written is "covered" by an index call held by
the Fund with the same strike price, the Fund will bear the risk that the
level of the index may decline between the close of trading on the date the
exercise notice is filed with the clearing corporation and the close of
trading on the date the Fund exercises the call it holds or the time the
Fund sells the call which in either case would occur no earlier than the
day following the day the exercise notice was filed.
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<PAGE>
Special Risks of Purchasing Puts and Calls on Indices. If the Fund
holds an index option and exercises it before final determination of the
closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of
the option (times the applicable multiple) to the assigned writer. Although
the Fund may be able to minimize this risk by withholding exercise
instructions until just before the daily cutoff time or by selling rather
than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the
cutoff times for index options may be earlier than those fixed for other
types of options and may occur before definitive closing index values are
announced.
Risks of Transactions in Options on Stock and Bond Index Futures. There
are several risks in connection with the use of options on stock and bond
index futures contracts as a hedging device. The correlation between the
price of the futures contract and the movements in the index may not be
perfect. Therefore, a correct forecast of interest rates and other factors
affecting markets for securities may still not result in a successful
hedging transaction.
Futures prices often are extremely volatile so successful use of
options on stock or bond index futures contracts 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, 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 options on stock or bond index futures
contracts 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.
Options on stock and bond index futures contracts are highly leveraged
and the specific market movements of the contract underlying an option
cannot be predicted. Options on futures must be bought and sold on
exchanges. Although the exchanges provide a means of selling an option
previously purchased or of liquidating an option previously written by an
offsetting purchase, there can be no assurance that a liquid market will
exist for a particular option at a particular time. 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.
Forward Foreign Currency Exchange Contracts
Since investments in foreign companies will usually involve currencies
of foreign countries, and since the Fund may hold funds in bank deposits in
foreign currencies, the value of the assets of the Fund as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign
currency rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies. The Fund
will conduct its foreign currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves
an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. A forward
contract generally has no deposit requirement, and no commissions are
charged at any stage for such trades.
Forward foreign currency exchange contracts are traded in the Interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers. They are not traded on exchanges
regulated by the CFTC or SEC. As a result, many of the protections afforded
to exchange participants will not be available.
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security which it holds, the Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the
purchase or sale of the amount of foreign currency involved in the
underlying transactions, 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 on which the
dividend or interest payment is declared, and the date on which such
payments are made or received.
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Additionally, when the Investment Adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the
U.S. dollar, the Fund may enter into a forward contract for a fixed amount
of dollars, to sell the amount of foreign currency approximating the value
of some or all of the Fund's portfolio securities denominated in such
foreign currency. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible since
the future value of securities in foreign currencies will change as a
consequence of market movements in the value of those securities between
the date on which the forward contract is entered into and the date it
matures. The projection of short-term currency market movement is extremely
difficult, and the successful execution of a short-term hedging strategy
is highly uncertain. The Fund will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of
the prospect for currency parities will be incorporated into the long-term
investment decisions made with regard to overall diversification
strategies. However, the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that
the best interests of the Fund will thereby be served. The Fund's Custodian
will place cash or liquid equity or debt securities into a segregated
account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a
daily basis so that the value of the account will not equal the amount of
the Fund's commitments with respect to such contracts.
The Fund generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, the Fund
may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the
same maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value
of a particular portfolio security at the expiration of the contract.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of foreign
currency that the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between the Fund's entering into a
forward contract for the sale of a foreign currency and the date it enters
into an offsetting contract for the purchase of the foreign currency, the
Fund will realize a gain to the extent that the price of the currency it
has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward contract prices increase, the Fund will suffer a
loss to the extent that the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will
be limited to the transactions described above. Of course, the Fund is not
required to enter into such transactions with regard to its foreign
currency-denominated securities. It also should be realized that this
method of protecting the value of the Fund's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities which are unrelated to exchange rates.
It simply establishes a rate of exchange which one can achieve at some
future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend physically to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. It will do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to
the dealer.
Options on Foreign Currencies
Instead of purchasing or selling futures or forward currency exchange
contracts, the Fund may attempt to accomplish similar objectives by
purchasing put or call options on currencies either on exchanges or in
over-the-counter markets or by writing put options or covered call options
on currencies. A put option gives the Fund the right to sell a currency at
the exercise price until the option expires. A call option gives the Fund
the right to purchase a currency at the exercise price until the option
expires. Both options serve to insure against adverse currency price
movements in the underlying portfolio assets designated in a given
currency. Currency options traded on U.S. or other exchanges may be subject
to position limits which may limit the ability of the Fund to fully hedge
its positions by purchasing such options.
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As in the case of interest rate futures contracts and options thereon,
the Fund may hdege against the risk of a decrease or increase in the U.S.
dollar value of a foreign currency denominated security which the Fund owns
or intends to acquire by purchasing or selling options contracts, futures
contracts or options thereon with respect to a foreign currrency other than
the foreign currency in which such security is denominated, where the
values of such different currencies (vis-a-vis the U.S. dollar)
historically have a high degree of positive correlation.
Risk of Transactions in Exchange Traded Options
An option position may be closed out only on an exchange, board of
trade or other trading facility which provides a secondary market for an
option of the same series. Although the Fund will generally purchase or
write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time, and for
some options no secondary market on an exchange or otherwise may exist. In
such event it might not be possible to effect closing transactions in
particular options, with the result that the Fund would have to exercise
its options in order to realize any profits and would incur brokerage
commissions upon the exercise of call options and upon the subsequent
disposition of underlying currencies acquired through the exercise of call
options or upon the purchase of underlying currencies for the exercise of
put options. If the Fund, as a covered call option writer, is unable to
effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying currency until the option expires or it
delivers the underlying currency 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; (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 or 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 intends to purchase and sell only those options which are
cleared by a clearinghouse whose facilities are considered to be adequate
to handle the volume of options transactions.
Risks of Options on Foreign Currencies
Options on foreign currencies involve the currencies of two nations
and, therefore, developments in either or both countries can affect the
values of options on foreign currencies. Risks include those described in
the Prospectus under "How the Fund Invests-Other Investments and Policies,"
including government actions affecting currency valuation and the movements
of currencies from one country to another. The quality of currency
underlying option contracts represents odd lots in a market dominated by
transactions between banks; this can mean extra transaction costs upon
exercise. Options markets may be closed while round-the-clock interbank
currency markets are open. This can create price and rate discrepancies.
Risks of Transactions in Futures Contracts on Foreign Currencies
There are several risks in connection with the use of futures contracts
as a hedging device. Due to the imperfect correlation between the price of
futures contracts and movements in the currency or group of currencies, the
price of a futures contract may move more or less than the price of the
currencies being hedged. Therefore, a correct forecast of currency rates,
market trends or international political trends by the Manager or
Subadviser may still not result in a successful hedging transaction.
Although the Fund will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for
any particular contract or at any particular time. Accordingly, there can
be no assurance that it will be possible, at any particular time, to close
a futures position. In the event the Fund could not close a futures
position and the value of such position declined, the Fund would be
required to continue to make daily cash payments of variation margin. There
is no guarantee that the price movements of the portfolio securities
denominated in foreign currencies will, in fact, correlate with the price
movements in the futures contracts and thus provide an offset to losses on
a futures contract. Currently, futures contracts are available on the
Australian Dollar, British Pound, Canadian Dollar, French Franc, Japanese
Yen, Swiss Franc, DeutscheMark and Eurodollar.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's Manager or Subadviser to predict correctly movements
in the direction of markets and other factors affecting currencies
generally. For example, if the Fund has
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hedged against the possibility of an increase in the price of securities
in its portfolio and price of such securities increases instead, the Fund
will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may need to sell
securities to meet such requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it is
disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent
that the futures markets close before the securities markets, significant
price and rate movements can take place in the securities markets that
cannot be reflected in the futures markets.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, but not
the obligation, to assume a position in a futures contract (a long position
if the option is a call and a short position if the option is a put) at a
specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in
the writer's futures margin account which represents the amount by which
the market price of the futures contract, at exercise, exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract. Currently options are available with
futures contracts on the Australian Dollar, British Pound, Canadian Dollar,
French Franc, Japanese Yen, Swiss Franc, DeutscheMark and Eurodollar.
The holder or writer of an option may terminate its position by selling
or purchasing an option of the same series. There is no guarantee that such
closing transactions can be effected.
Limitations on Purchase and Sale of Options on Foreign Currencies and
Futures Contracts on Foreign Currencies
The Fund will write put options on foreign currencies and futures
contracts on foreign currencies only if they are 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. The Fund will not (a) write
puts having aggregate exercise prices greater than 25% of total net assets;
or (b) purchase (i) put options on currencies or futures contracts on
foreign currencies or (ii) call options on foreign currencies if, after any
such purchase, the aggregate premiums paid for such options would exceed
10% of the Fund's total net assets.
The Fund intends to engage in futures contracts and options on 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. 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.
Position Limits
Transactions by the Fund in futures contracts and options will be
subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing
the maximum number of options in each class which may be written or
purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or different
exchanges, boards of trade or other trading facilities or are held or
written in one or more accounts or through one or more brokers. Thus, the
number of futures contracts and options which the Fund may write or
purchase may be affected by the futures contacts 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.
Repurchase Agreements
The Fund may on occasion enter into repurchase agreements, wherein the
seller agrees to repurchase a security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's
money is invested in the security. The Fund's repurchase agreements will at
all times be fully collateralized in an amount at least equal to the
purchase price including accrued interest earned on the underlying
securities. The instruments held as collateral are valued daily, and as the
value of instruments declines, the Fund will require additional collateral.
If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss. The Fund
participates in a joint repurchase account with other investment companies
managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to an
order of the Securities and Exchange Commission (SEC).
B-9
<PAGE>
Defensive Strategy
When conditions dictate a defensive strategy, the Fund may invest in
money market instruments, including commercial paper of domestic
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic banks (including foreign branches), and obligations
issued or guaranteed by the U.S. Government, its instrumentalities or its
agencies. Investments in foreign branches may be subject to certain risks,
including future political and economic developments, the possible
imposition of withholding taxes on interest income, the seizure or
nationalization of foreign deposits and foreign exchange controls or other
restrictions. The Fund may also invest in short-term municipal
obligations, such as tax, bond and revenue anticipation notes, construction
loan and project financing notes and tax-exempt commercial paper. When cash
may be available only for a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or
used for payment of obligations of the Fund. See "Repurchase Agreements."
Portfolio Turnover
The Fund expects that its portfolio turnover rate may exceed 100%,
although such rate is not expected to exceed 200%. The portfolio's turnover
rate is computed by dividing the lesser of portfolio purchases or sales
(excluding all securities whose maturities at acquisition were one year or
less) by the average value of the portfolio. High portfolio turnover
involves correspondingly greater brokerage commissions and other
transaction costs, which are borne directly by the Fund.
Lending of Securities
Consistent with applicable regulatory requirements, the Fund may lend
its portfolio securities to brokers, dealers and financial institutions,
provided that outstanding loans do not exceed in the aggregate 33% of the
value of the Fund's total assets and provided that such loans are callable
at any time by the Fund and are at all times secured by cash or equivalent
collateral that is equal to at least the market value, determined daily, of
the loaned securities. The advantage of such loans is that the Fund
continues to receive payments in lieu of the interest and dividends on the
loaned securities, while at the same time earning interest either directly
from the borrower or on the collateral which will be invested in short-term
obligations.
A loan may be terminated by the borrower on one business day's notice
or by the Fund at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Fund could
use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some
cases loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities
will only be made to firms determined to be creditworthy pursuant to
procedures approved by the Directors of the Fund. On termination of the
loan, the borrower is required to return the securities to the Fund, and
any gain or loss in the market price during the loan would inure to the
Fund.
Since voting or consent rights which accompany loaned securities pass
to the borrower, the Fund will follow the policy of calling the loan, in
whole or in part as may be appropriate, to permit the exercise of such
rights if the matters involved would have a material effect on the Fund's
investment in the securities which are the subject of the loan. The Fund
will pay reasonable finders', administrative and custodial fees in
connection with a loan of its securities or may share the interest earned
on collateral with the borrower.
The Fund does not intend to lend its securities during the coming year.
Illiquid Securities
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 securities 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 Subadviser 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
notice period.
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 OTC
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."
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, securities which are otherwise not
readily marketable and repurchase
B-10
<PAGE>
agreements having a maturity of longer than seven days. Securities which
have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds typically have
not held a significant amount of restricted or other illiquid securities
because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register
such restricted securities in order to dispose of them, resulting in
additional expense and delay. Adverse market conditions could impede such
a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be
indicative of the liquidity of such investments.
Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as foreign convertible
securities will expand further as a result of this new regulation and the
development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the
PORTAL System sponsored by the NASD.
The investment adviser will monitor the liquidity of restricted
securities in the Fund's portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors:
1. the frequency of trades and quotes for the security;
2. the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers;
3. dealer undertakings to make a market in the security; and
4. the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. A fundamental
policy cannot be changed without the approval of the holders of a majority
of the Fund's outstanding voting securities. As defined in the Investment
Company Act, a majority of the Fund's outstanding voting securities means
the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are present in person or represented by
proxy or (ii) more than 50% of the 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 or payment by the Fund of initial or maintenance margin in
connection with options, futures contracts, options on futures contracts,
forward foreign currency exchange contracts or options on currencies 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
B-11
<PAGE>
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, options on futures contracts, forward foreign currency exchange
contracts and options on currencies and collateral arrangements with
respect to the purchase and sale of options, futures contracts, options on
futures contracts, forward foreign currency exchange contracts and options
on currencies 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 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 predecessors) less than three years old.
7. Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, except that the Fund may purchase and sell
options, futures contracts, options on futures contracts, forward foreign
currency exchange contracts and options on currencies and securities which
are secured by real estate and securities of companies which invest or deal
in real estate.
8. 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. Make investments for the purpose of exercising control or
management.
10. 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. 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. 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, (ii) the lending
of its portfolio securities, as described under "Investment Objective and
Policies-Lending of Securities" and (iii) repurchase agreements. (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.)
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of the Fund's assets, it is intended that if
the percentage limitation is met at the time the investment is made, a
later change in percentage resulting from changing total or net asset
values will not be considered a violation of such policy. However, in the
event that the Fund's asset coverage for borrowings falls below 300%, the
Fund will take prompt action to reduce its borrowings, as required by
applicable law.
The Fund's policy with respect to put and call options is not a
fundamental policy and may be changed without shareholder approval. See
"Investment Objective and Policies."
It is also a policy of the Fund, which may be changed without
shareholder approval, not to purchase any voting security of any electric
or gas utility company (as defined by the Public Utility Holding Company
Act of 1935) if as a result the Fund would then hold 5% or more of the
outstanding voting securities of such company.
In order to comply with certain State "blue sky" restrictions, the Fund
will not as a matter of operating policy (1) make investments which are not
readily marketable if at the time of investment more than 15% of its total
assets would be committed to such investments, including illiquid
securities and foreign securities which are not listed on an exchange; (2)
invest in oil, gas and mineral leases; (3) invest more than 2% of its
assets in options, financial futures or stock index futures, other than
hedging positions or positions that are covered by cash or securities; (4)
invest in real estate limited partnerships; (5) purchase the securities of
any one issuer if, to the knowledge of the Fund, any officer or director of
the Fund or the Manager or Subadviser owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer; and (6) purchase warrants if as a
result the Fund would then have more than 5% of its net assets (determined
at the time of investment) invested in warrants. Warrants will be valued at
the lower of cost or market and investment in warrants which are not listed
on the New York Stock Exchange or American Stock Exchange will be limited
to 2% of the Fund's net assets (determined at the time of investment). For
the purpose of this limitation, warrants acquired in units or attached to
securities are deemed to be without value.
B-12
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------- ------------- ---------------------
<S> <C> <C>
Robert R. Fortune Director Financial Consultant; previously Chairman, President and Chief
c/o Prudential Mutual Fund Executive Officer of Associated Electric & Gas Insurance
Management, Inc. Services Limited and Aegis Insurance Services, Inc.;
One Seaport Plaza Director of Temporary Investment Fund, Inc., Independence
New York, NY Square Income Securities Inc. and Portfolios for Diversified
Investment, Inc.; 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 Dedrick Gold Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Jr. Director Senior Director (since January 1986) of Prudential Securi-
One Seaport Plaza ties Incorporated (Prudential Securities); formerly Interim
New York, NY Chairman and Chief Executive Officer of PMF (June-
September 1993), Chairman of the Board of Prudential
Securities (1982-1985) and Chairman of the Board and Chief
Executive Officer of Bache Group Inc. (1977-1982); Director
of Center for National Policy, The First Australia Fund, Inc.,
The First Australia Prime Income Fund, Inc., The Global Gov-
ernment Plus Fund, Inc. and The Global Yield Fund, Inc.;
Trustee of The Trudeau Institute.
*Lawrence C. McQuade President and Vice Chairman of PMF (since 1988); Managing
One Seaport Plaza Director Director, Investment Banking, Prudential Securities
New York, NY (1988-1991); Director of Quixote Corporation (since Febru-
ary 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 W.R. Grace & Company; President and Director
of The Global Government Plus Fund, Inc., The Global Yield
Fund, Inc. and The High Yield Income Fund, Inc.
Thomas A. Owens, Jr. Director Consultant; Director of EMCORE Corporation.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
*Richard A. Redeker Director President, Chief Executive Officer and Director (since October
One Seaport Plaza 1993), PMF; Executive Vice President, Director and
New York, NY Member of the Operating Committee (since October 1993),
Prudential Securities; Director (since October 1993) of Pru-
dential Securities Group, Inc.; formerly Senior Executive
Vice President and Director of Kemper Financial Services,
Inc. (September 1978-September 1993); Director of The
Global Government Plus Fund, Inc. and The High Yield
Income Fund, Inc.
</TABLE>
B-13
<PAGE>
<TABLE>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------- ------------- ---------------------
<S> <C> <C>
Robert J. Schultz Director Retired (since January 1987); formerly Financial Vice
c/o Prudential Mutual Fund President, Commonwealth Edison Company.
Management, Inc.
One Seaport Plaza
New York, NY
Merle T. Welshans Director Adjunct Professor of Finance, Washington University (since
c/o Prudential Mutual Fund July 1983); prior thereto, Vice President-Finance, Union
Management, Inc. Electric Company; Trustee, Olympic Trust Funds of Los Angeles.
One Seaport Plaza
New York, NY
Robert F. Gunia Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989) and Executive Vice President,
New York, NY Treasurer and Chief Financial Officer (since June 1987)
of PMF; Senior Vice President (since March 1987) of Pru-
dential Securities; Vice President and Director (since May
1989) of The Asia Pacific Fund, Inc.
Susan C. Cote Treasurer and Senior Vice President of PMF; Senior Vice President
One Seaport Plaza Principal (since January 1992) and Vice President (January 1986-
New York, NY Financial and December 1991) of Prudential Securities.
Accounting Officer
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior Counsel
One Seaport Plaza (since June 1987) and First Vice President (June 1987-
New York, NY December 1990) of PMF; Senior Vice President and Senior
Counsel (since July 1992) of Prudential Securities; formerly
Vice President and Associate General Counsel of Prudential
Securities.
Marguerite E.H. Morrison Assistant Vice President and Associate General Counsel (since June
One Seaport Plaza Secretary 1991) of PMF; Vice President and Associate General
New York, NY Counsel of Prudential Securities.
<FN>
- ----------------
* "Interested" director, as defined in the Investment Company Act, by
reason of his affiliation with Prudential Securities or PMF.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general
policy.
As described above, certain of the disinterested Directors of the Fund
are affiliated with certain utility companies, and one director is a
financial consultant who may advise utility clients. In such capacities,
these Directors may have access to non-public information regarding certain
utility companies or the utility industry generally which they will be
under an obligation not to disclose to the Fund. In connection with their
review of the Fund's investment program, Directors will not disclose or
consider non-public information relating to portfolio investments. It is
also the policy of the Fund not to invest in securities of any utility
company with which any Director is affiliated.
The Fund pays each of its Directors who is not an affiliated person of
PMF annual compensation of $9,000, in addition to certain out-of-pocket
expenses.
Directors may receive their Directors' fees pursuant to a
deferred fee agreement with the Fund. Under the terms of such agreement,
the Fund accrues daily the amount of Directors' fees which accrue interest
at a rate equivalent to the prevailing rate applicable to 90-day U.S.
Treasury bills at the beginning of each calendar quarter or, pursuant to
an SEC exemptive order, at the daily rate of return of the Fund (the Fund
rate). Payment of the interest so accrued is also deferred and 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.
As of March 31, 1994, the Directors and officers of the Fund, as
a group, owned less than 1% of the outstanding common stock of the Fund.
B-14
<PAGE>
As of March 31, 1994, Prudential Securities was record holder of
15,672,283 Class A shares (or 48% of the outstanding Class A shares) and
205,235,013 Class B shares (or 44% of the outstanding Class B shares) of
the Fund. In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy material to the
beneficial owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF
or the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to all of the other investment companies that, together with the
Fund, comprise the Prudential Mutual Funds. See "How the Fund is Managed"
in the Prospectus. As of March 31, 1994, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately [$49] billion. According to the Investment Company Institute,
as of December 31, 1993, the Prudential Mutual Funds were the 12th largest
family of mutual funds in the United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of
Directors and in conformity with the stated policies of the Fund, manages
both the investment operations of the Fund and the composition of the
Fund's portfolio, including the purchase, retention, disposition and loan
of securities. In connection therewith, PMF is obligated to keep certain
books and records of the Fund. PMF also administers the Fund's corporate
affairs and, in connection therewith, furnishes the Fund with office
facilities, together with those ordinary clerical and bookkeeping services
which are not being furnished by State Street Bank and Trust Company, the
Fund's custodian, and Prudential Mutual Fund Services, Inc. (PMFS or the
Transfer Agent), the Fund's transfer and dividend disbursing agent. The
management services of PMF for the Fund are not exclusive under the terms
of the Management Agreement and PMF is free to, and does, render management
services to others.
For its services, PMF receives, pursuant to the Management Agreement, a
fee at an annual rate of .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, .35 of
1% of 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. The
fee is computed daily and payable monthly. Prior to , 1994, the
management fee, with respect to net assets in excess of $2 billion, was .35
of 1% of the Fund's average daily net assets. However, for the period from
October 1, 1993 through June , 1994, the Manager agreed to waive a portion
of its management fee with respect to assets in excess of $2 billion so
that the annual fee received by the Manager was as follows: .35 of 1% of
the Fund's average daily net assets between $2 billion and $4 billion, .325
of 1% of average daily net assets between $4 billion and $6 billion and .30
of 1% of average daily net assets in excess of $6 billion. The Management
Agreement also provides that, in the event the expenses of the Fund
(including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Fund's business) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statutes or
regulations of any jurisdiction in which the Fund's shares are qualified
for offer and sale, the compensation due PMF will be reduced by the amount
of such excess. Reductions in excess of the total compensation payable to
PMF will be paid by PMF to the Fund. No such reductions were required
during the fiscal year ended December 31, 1993. Currently, the Fund
believes that the most restrictive expense limitation of state securities
commissions is 2 1/2% of the Fund's average daily net assets up to $30
million, 2% of the next $70 million of such assets and 1 1/2% of such
assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund,
PMF bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of
PMF or the Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation (PIC) pursuant to the subadvisory agreement between PMF and PIC
(the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible
for the payment of the following expenses: (a) the fees payable to the
Manager, (b) the fees and expenses of Directors who are not affiliated
persons of the Manager or the Fund's investment adviser, (c) the fees and
certain expenses of the Custodian and Transfer and Dividend Disbursing
Agent, including the cost of providing records to the Manager in connection
with its obligation of maintaining required records of the Fund and of
pricing the Fund's shares, (d) the charges and expenses of legal counsel
and independent accountants for the Fund, (e) brokerage commissions and any
issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the
Fund to governmental agencies, (g) the fees of any trade associations of
which the Fund may be a
B-15
<PAGE>
member, (h) the cost of stock certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) the fees and
expenses involved in registering and maintaining registration of the Fund
and of its shares with the SEC, registering the Fund and qualifying its
shares under state securities laws, including the preparation and printing
of the Fund's registration statements and prospectuses for such purposes,
(k) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses
to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with
the matters to which the Management Agreement relates, except a loss
resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. The Management Agreement provides that it will terminate
automatically if assigned, and that it may be terminated without penalty by
either party upon not more than 60 days' nor less than 30 days' written
notice. The Management Agreement will continue in effect for a period of
more than two years from the date of execution only so long as such
continuance is specifically approved at least annually in conformity with
the Investment Company Act. The Management Agreement was last approved by
the Board of Directors of the Fund, including all of the Directors who are
not parties to the contract or interested persons of any such party as
defined in the Investment Company Act on [September 9, 1993] and by
shareholders of the Fund on , 1994.
For the years ended December 31, 1993, 1992 and 1991, PMF received
management fees of $18,383,363, $13,493,919 and $11,523,432, respectively.
PMF has entered into the Subadvisory Agreement with PIC (the
Subadviser), a wholly-owned subsidiary of The Prudential Insurance Company
of America (Prudential). The Subadvisory Agreement provides that PIC will
furnish investment advisory services in connection with the management of
the Fund. In connection therewith, PIC is obligated to keep certain books
and records of the Fund. PMF continues to have responsibility for all
investment advisory services pursuant to the Management Agreement and
supervises PIC's performance of such services. PIC is reimbursed by PMF for
the reasonable costs and expenses incurred by PIC in furnishing those
services.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to such contract
or interested persons of any such parties, on [June 9, 1993,] and by
shareholders of the Fund on April 29, 1988.
The Subadvisory Agreement provides that it will terminate in the event
of its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less
than 30 days', written notice. The Subadvisory Agreement provides that it
will continue in effect for a period of more than two years from its
execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment
Company Act.
The Manager and the Subadviser are subsidiaries of The Prudential
Insurance Company of America (Prudential) which, as of December 31, 1993,
is one of the largest financial institutions in the world and the largest
insurance company in North America. Prudential has been engaged in the
insurance business since 1875. [In July 1993, Institutional Investor ranked
Prudential the largest institutional money manager of the 300 largest money
management organizations in the United States as of December 31, 1992].
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza,
New York, New York 10292 acts as the distributor of the Class A shares of
the Fund. Prudential Securities Incorporated, One Seaport Plaza, New York,
New York 10292 acts as the distributor of the Class B and Class C shares of
the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan,
the Class B Plan and the Class C Plan, collectively, the Plans) adopted by
the Fund under Rule 12b-1 under the Investment Company Act and separate
distribution agreements (the Distribution Agreements), PMFD and Prudential
Securities (collectively, the Distributor) incur the expenses of
distributing the Fund's Class A, Class B and Class C shares. See "How the
Fund is Managed-Distributor" in the Prospectus.
Prior to January 22, 1990, the Fund offered only one class of shares
(the then existing Class B shares). On February 8, 1989 and September 13,
1989, the Board of Directors, including a majority of the Directors who are
not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Class A or Class B Plan or in
any agreement related to either Plan (the Rule 12b-1 Directors), at a
meeting called for the purpose of voting on each Plan, adopted a new plan
of distribution for the Class A shares of the Fund (the Class A Plan) and
approved an amended and restated plan of distribution with respect to the
Class B shares of the Fund (the Class B Plan). On June 9, 1993, the
Directors, including a majority of the Rule 12b-1
B-16
<PAGE>
Directors, at a meeting called for the purpose of voting on each Plan,
approved the continuance of the Plans and Distribution Agreements and
approved modifications of the Fund's Class A and Class B Plans and
Distribution Agreements to conform them with recent amendments to the
National Association of Securities Dealers, Inc. (NASD) maximum sales
charge rule described below. As so modified, the Class A Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class A
shares may be used to pay for personal service and/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%. As so
modified, the Class B Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class B shares may be paid as a service
fee and (ii) up to .75 of 1% (not including the service fee) of the
average daily net assets of the Class B shares (asset-based sales charge)
may be used as reimbursement for distribution-related expenses with
respect to the Class B shares. On [June 9, 1993], the Board of Directors,
including a majority of the Rule 12b-1 Directors, at a meeting called for
the purpose of voting on each Plan, adopted a plan of distribution for the
Class C shares of the Fund and approved further amendments to the plans of
distribution for the Fund's Class A and Class B shares, changing them from
reimbursement type plans to compensation type plans. The Plans were last
approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on [June 9, 1993]. The Class A Plan, as amended, was approved
by the Class A and Class B shareholders, and the Class B Plan, as amended,
was approved by the Class B shareholders on , 1994. The Class C
Plan was approved by the sole shareholder of Class C shares on ,
1994.
Class A Plan. For the fiscal year ended December 31, 1993, PMFD
received payments of $573,660 under the Class A Plan as reimbursement of
expenses related to the distribution of Class A shares. This amount was
primarily expended for payment of account servicing fees to financial
advisers and other persons who sell Class A shares. For the fiscal year
ended December 31, 1993, PMFD also received $5,755,000 in initial sales
charges.
Class B Plan. For the fiscal year ended December 31, 1993, the
Distributor received $43,080,963 from the Fund under the Class B Plan. It
is estimated that the Distributor incurred aggregate distribution expenses
of approximately $60,566,900 on behalf of the Fund during this period. 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, an affiliated
broker-dealer, for commissions to its financial advisers and other
expenses, including an allocation on account of overhead and other branch
office distribution-related expenses, incurred by it for distribution of
Fund shares; 2.2% ($1,330,500) on interest and/or carrying charges; and
63.3% ($38,363,600) on the aggregate of (i) commission credits to
Prudential Securities branch offices for payments of commissions to
financial advisers (32.4% or $19,652,700) and (ii) an allocation of
overhead and other branch office distribution-related expenses (30.9% or
$18,710,900). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating
branch offices of Prudential Securities and Prusec in connection with the
sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the
costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Fund shares, and (d) other incidental
expenses relating to branch promotion of Fund sales.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by holders of Class B shares upon certain redemptions of Class
B shares. See "Shareholder Guide-How to Sell Your Shares-Contingent
Deferred Sales Charges" in the Prospectus. The amount of distribution
expenses reimbursable by the Class B shares of the Fund is reduced by the
amount of such contingent deferred sales charges. For the fiscal year ended
December 31, 1993, the Distributor received approximately $4,330,000 in
contingent deferred sales charges.
Class C Plan. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class
C shares. See "Shareholder Guide-How to Sell Your Shares-Contingent
Deferred Sales Charges" in the Prospectus. Prior to the date of this
Statement of Additional Information, no distribution expenses were incurred
under the Class C Plan.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by
a vote of the Board of Directors, including a majority vote of the Rule
12b-1 Directors, cast in person at a meeting called for the purpose of
voting on such continuance. The Plans may each be terminated at any time,
without penalty, by the vote of a majority of the Rule 12b-1 Directors or
by the vote of the holders of a majority of the outstanding shares of the
applicable class on not more than 30 days' written notice to any other
party to the Plans. The Plans may not be amended to increase materially the
amounts to be spent for the services described therein without approval by
the shareholders of the applicable class (by both Class A and Class B
shareholders, voting separately, in the case of material amendments to the
Class A Plan), and all material amendments are required to be approved by
the Board of Directors in the manner described above. Each Plan will
automatically terminate in the event of its assignment. The Fund will not
be contractually obligated to pay expenses incurred under any Plan if it is
terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf
of each class of shares of the Fund by the Distributor. The report 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 the Rule 12b-1 Directors shall be committed to
the Rule 12b-1 Directors.
B-17
<PAGE>
Pursuant to each Distribution Agreement, the Fund has agreed to
indemnify PMFD and Prudential Securities to the extent permitted by
applicable law against certain liabilities under the Securities Act of
1933, as amended. Each Distribution Agreement was last approved by the
Directors, including a majority of the Rule 12b-1 Directors, on [June 9,
1993].
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred
sales charges and asset-based sales charges to 6.25% of total gross sales
of each class of shares. In the case of Class B shares, interest charges on
unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitiation. Sales from the
reinvestment of dividends and distributions are not included in the
calculation of the 6.25% limitation. The annual asset-based sales charge
on Class B shares of the Fund may not exceed .75 of 1% per class. The 6.25%
limitation applies to each class of the Fund rather than on a per
shareholder basis. If aggregate sales charges were to exceed 6.25% of total
gross sales of any class, all sales charges on shares of that class would
be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions
and the negotiation of brokerage commissions, if any. The term "Manager" as
used in this section includes the Subadviser. Purchases and sales of
securities on a 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 and its affiliates. Brokerage commissions on United
States securities, options and futures exchanges or boards of trade are
subject to negotiation between the Adviser and the broker or futures
commission merchant.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account 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 or any affilate acts as
principal. Thus it will not deal in over-the-counter securities with
Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves
Prudential Securities acting as principal with respect to any part of the
Fund's order.
In placing orders for portfolio securities of the Fund, the Manager 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 or dealers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of the Fund, and the services
furnished by such brokers or dealers may be used by the Manager in
providing investment management for the Fund. Commission rates are
established pursuant to negotiations with the broker or dealer based on the
quality and quantity of execution services provided by the broker or dealer
in the light of generally prevailing rates. The Manager's policy is to pay
higher commission rates 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 the 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 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 dealers 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 as a broker or futures commission merchant for the Fund. In
order for Prudential Securities (or any affiliate) to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions
B-18
<PAGE>
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) under the Securities Exchange Act of
1934, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the
Fund has expressly authorized the retention of such compensation.
Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage transactions with Prudential Securities (or
any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.
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 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.
The table presented below shows certain information regarding the
payment of commissions by the Fund, including the amount of such
commissions paid to Prudential Securities for the three-year period ended
December 31, 1993.
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1993 December 31, 1992 December 31, 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund ........................... $4,408,907 $3,874,696 $3,084,779
Total brokerage commissions paid to Prudential Securities .............. 366,575 455,706 370,000
Percentage of total brokerage commissions paid to
Prudential Securities ................................................ 8.3% 11.8% 12.0%
</TABLE>
The Fund effected approximately 8.5% of the total dollar amount of its
transactions involving the payment of commissions through Prudential
Securities during the year ended December 31, 1993. Of the total brokerage
commissions paid during that period, $3,566,805 (80.9%) were paid to firms
which provide 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.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next
determined net asset value per share, plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase
(the Class A shares) or (ii) on a deferred basis (the Class B or Class C
shares). See "Shareholder Guide-How to Buy Shares of the Fund" in the
Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service
plan, (ii) each class has exclusive voting rights with respect to its plan
(except that the Fund has agreed with the SEC in connection with the
offering of a conversion feature on Class B shares to submit any amendment
of the Class A distribution and service plan to both Class A and Class B
shareholders) and (iii) only Class B shares have a conversion feature. See
"Distributor." Each class also has separate exchange privileges. See
"Shareholder Investment Account-Exchange Privilege."
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and
Class B* and Class C* shares are sold at net asset value. Using the Fund's
net asset value at December 31, 1993, the maximum offering price of the
Fund's shares is as follows:
Class A
- -------
Net asset value and redemption price per Class A share ................ $ 9.72
------
Maximum sales charge (5% of offering price) ........................... .51
------
Maximum offering price to public ...................................... 10.23
======
B-19
<PAGE>
Class B
- -------
Net asset value, offering price and redemption price per Class B share* $ 9.69
======
Class C
- -------
Net asset value, offering price and redemption price per Class C share* $ 9.69
======
- --------
*Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide-How to Sell Your
Shares-Contingent Deferred Sales Charges" in the Prospectus.
Reduction and Waiver of Initial Sales Charges-Class A Shares
Combined Purchases and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide-Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of
the following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or
group that holds 25% or more of the outstanding voting securities
of a company will be deemed to control the company, and a partnership
will be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by
an individual.
[In addition, an eligible group of related Fund investors may include
an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that employer).]
The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges
will be granted subject to confirmation of the investor's holdings.
Rights of Accumulation. Reduced sales charges are also available
through Rights of Accumulation, under which an investor or an eligible
group of related investors, as described above under "Combined Purchase and
Cumulative Purchase Privilege," may aggregate the value of their existing
holdings of shares of the Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the
exchange privilege) to determine the reduced sales charge. However, the
value of shares held directly with the Transfer Agent and through
Prudential Securities will not be aggregated to determine the reduced sales
charge. All shares must be held either directly with the Transfer Agent or
through Prudential Securities. The value of existing holdings for purposes
of determining the reduced sales charge is calculated using the maximum
offering price (net asset value plus maximum sales charge) as of the
previous business day. See "How the Fund Values its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that
the shareholder is entitled to a reduced sales charge. The reduced sales
charges will be granted subject to confirmation of the investor's holdings.
Rights of Accumulation are not available to individual participants in any
retirement or group plans.
Letters of Intent. Reduced sales charges are available to investors (or
a related group of eligible investors) who enter into a written Letter of
Intent providing for the purchase, within a thirteen-month period, of
shares of the Fund and shares of other Prudential Mutual Funds. All shares
of the Fund and shares of other Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege)
which were previously purchased and are still owned are also included in
determining the applicable reduction. However, the value of shares held
directly with the Transfer Agent and through Prudential Securities will not
be aggregated to determine the reduced sales charge. All shares must be
held either directly with the Transfer Agent or through Prudential
Securities. Letters of Intent are not available to individual participants
in any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment
goal to be achieved by any number of investments over a thirteen-month
period. Each investment made during the period will receive the reduced
sales charge applicable to the amount
B-20
<PAGE>
represented by the goal, as if it were a single investment. Escrowed Class
A shares totaling 5% of the dollar amount of the Letter of Intent will be
held by the Transfer Agent in the name of the purchaser. The effective
date of a Letter of Intent may be back-dated up to 90 days, in order that
any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor
the Fund to sell, the indicated amount. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser is
required to pay the difference between the sales charge otherwise
applicable to the purchases made during this period and sales charges
actually paid. Such payment may be made directly to the Distributor or, if
not paid, the Distributor will liquidate sufficient escrowed shares to
obtain such difference. If the goal is exceeded in an amount which
qualifies for a lower sales charge, a price adjustment is made by refunding
to the purchaser the amount of excess sales charge, if any, paid during the
thirteen-month period. Investors electing to purchase Class A shares of the
Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
Quantity Discount-Class B Shares Purchased Prior to , 1994
The CDSC is reduced on redemptions of Class B shares of the Fund
purchased prior to , 1994 if immediately after a purchase of such
shares, the aggregate cost of all Class B shares of the Fund owned by you
in a single account exceeded $500,000. For example, if you purchase
$100,000 of Class B shares of the Fund and the following year purchase an
additional $450,000 of Class B shares with the result that the aggregate
cost of your Class B shares of the Fund following the second purchase was
$550,000, the quantity discount would be available for the second purchase
of $450,000 but not for the first purchase of $100,000. The quantity
discount will be imposed at the following rates depending on whether the
aggregate value exceeded $500,000 or $1 million:
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
or Redemption Proceeds
Year Since Purchase ----------------------------------------
Payment Made $500,001 to $1 million Over $1 million
------------------- ---------------------- ---------------
First ........................ 3.0% 2.0%
Second ....................... 2.0% 1.0%
Third ........................ 1.0% 0%
Fourth and thereafter ........ 0% 0%
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Shareholder
Investment Account is established for each investor under which a record of
the shares held is maintained by the Transfer Agent. If a stock certificate
is desired, it must be requested in writing for each transaction.
Certificates are issued only for full shares and may be redeposited in the
Account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a transaction takes place in the Shareholder
Investment Account, the shareholder will be mailed a statement showing the
transaction and the status of the Account. The Fund makes available to the
shareholder the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An
investor may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received
on the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or
distribution may reinvest such dividend or distribution at net asset value
by returning the check or the proceeds to the Transfer Agent within 30 days
after the payment date. Such investment will be made at the net asset value
per share next determined after receipt of the check or proceeds by the
Transfer Agent. Such shareholder will receive credit for any contingent
deferred sales charge paid in connection with the amount of proceeds being
reinvested.
Exchange Privilege
The Fund makes available to its shareholders the privilege of
exchanging their shares of the Fund for shares of certain other Prudential
Mutual Funds, including one or more specified money market funds, subject
in each case to the minimum investment
B-21
<PAGE>
requirements of such funds. Shares of such other Prudential Mutual Funds
may also be exchanged for shares of the Fund. All exchanges are made on
the basis of relative net asset value next determined after receipt of an
order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another
fund only if shares of such fund may legally be sold under applicable
state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those
funds eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of
Prudential Government Securities Trust (Intermediate Term Series) and
shares of the money market funds specified below. No fee or sales load will
be imposed upon the exchange. Shareholders of money market funds who
acquired such shares upon exchange of Class A shares may use the Exchange
Privilege only to acquire Class A shares of the Prudential Mutual Funds
participating in the Exchange Privilege.
The following money market funds participate in the Class A
Exchange Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachussetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
Class B and Class C. Shareholders of the Fund may exchange their Class
B and Class C shares for Class B and Class C shares, respectively, of
certain other Prudential Mutual Funds and shares of Prudential Special
Money Market Fund, a money market fund. No CDSC will be payable upon such
exchange, but a CDSC may be payable upon the redemption of the Class B and
Class C shares acquired as a result of an exchange. The applicable sales
charge will be that imposed by the fund in which shares were initially
purchased and the purchase date will be deemed to be the first day of the
month after the initial purchase, rather than the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares
of an eligible money market fund without imposition of any CDSC at the time
of exchange. Upon subsequent redemption from such money market fund or
after re-exchange into the Fund, such shares will be subject to the CDSC
calculated by excluding the time such shares were held in the money market
fund. In order to minimize the period of time in which shares are subject
to a CDSC, shares exchanged out of the money market fund will be exchanged
on the basis of their remaining holding periods, with the longest remaining
holding periods being transferred first. [In measuring the time period
shares are held in a money market fund and "tolled" for purposes of
calculating the CDSC holding period, exchanges are deemed to have been made
on the last day of the month.] Thus, if shares are exchanged into the Fund
from a money market fund during the month (and are held in the Fund at the
end of the month), the entire month will be included in the CDSC holding
period. Conversely, if shares are exchanged into a money market fund prior
to the last day of the month (and are held in the money market fund on the
last day of the month), the entire month will be excluded from the CDSC
holding period. For purposes of calculating the seven-year holding period
applicable to the Class B conversion feature, the time period during which
Class B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege the shareholder may again exchange
those shares (and any reinvested dividends and distributions) for Class B
or Class C shares of the Fund, respectively, without subjecting such shares
to any CDSC. Shares of any fund participating in the Class B or Class C
exchange privilege that were acquired through reinvestment of dividends or
distributions may be exchanged for Class B or Class C shares of other
funds, respectively, without being subject to any CDSC.
Additional details about the Exchange Privilege and prospectuses for
each of the Prudential Mutual Funds are available from the Fund's Transfer
Agent, Prudential Securities or Prusec. The Exchange Privilege may be
modified, terminated or suspended on sixty days' notice, and any fund,
including the Fund, or the Distributor, has the right to reject any
exchange application relating to such fund's shares.
B-22
<PAGE>
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of
shares were bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement,
to save for a major expenditure, such as the purchase of a home, or to
finance a college education. The cost of a year's education at a four-year
college today averages around $14,000 at a private college and around
$4,800 at a public university. Assuming these costs increase at a rate of
7% a year, as has been projected, for the freshman class of 2007, the cost
of four years at a private college could reach $163,000 and over $97,000 at
a public university.1
The following chart shows how much you would need in monthly
investments to achieve specified lump sums to finance your investment
goals.2
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
- -------------------- -------- -------- -------- --------
25 years ................... 110 165 220 275
20 years ................... 176 264 352 440
15 years ................... 296 444 592 740
10 years ................... 555 833 1,110 1,388
5 years ................... 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
1Source information concerning the costs of education at public
universities is available from The College Board Annual Survey of Colleges,
1992. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics;
and the U.S. Department of Education. Average costs for private
institutions include tuition, fees, room and board.
2The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of an investment will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount
automatically invested in shares of the Fund monthly by authorizing his or
her bank account or Prudential Securities account (including a Command
Account) to be debited to invest specified dollar amounts in shares of the
Fund. The investor's bank must be a member of the Automatic Clearing House
System. Share certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides
for monthly or quarterly checks in any amount, except as provided below, up
to the value of the shares in the shareholder's account. Withdrawals of
Class B or Class C shares may be subject to a CDSC. See "Shareholder
Guide-How to Sell Your Shares-Contingent Deferred Sales Charges" in the
Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000
minimum account value applies, (ii) withdrawals may not be for less than
$100 and (iii) the shareholder must elect to have all dividends and/or
distributions automaticially reinvested in additional full and fractional
shares at net asset value on shares held under this plan. See "Shareholder
Investment Account-Automatic Reinvestment of Dividends and/or
Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide
the amount of the periodic withdrawal payment. The systematic withdrawal
plan may be terminated at any time, and the Distributor reserves the right
to initiate a fee of up to $5 per withdrawal, upon 30 days' written notice
to the shareholder.
Withdrawal payments should not be considered as dividends, yield or
income. If periodic withdrawals continuously exceed reinvested dividends
and distributions, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and
any gain or loss realized must generally be recognized for federal income
tax purposes. In addition, withdrawals made concurrently with the purchases
of additional shares
B-23
<PAGE>
are inadvisable because of the sales charge applicable to (i) the purchase
of Class A shares and (ii) the withdrawal of Class B and Class C shares.
Each shareholder should consult his or her own tax adviser with regard to
the tax consequences of the systematic withdrawal plan, particularly if
used in connection with a retirement plan.
Tax-Deferred Retirement Plans
Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax sheltered accounts"
under Section 403(b)(7) of the Internal Revenue Code are available through
the Distributor. These plans are for use by both self-employed individuals
and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information
regarding the establishment of these plans, the administration, custodial
fees and other details are available from Prudential Securities or the
Transfer Agent.
Investors who are considering the adoption of such a plan should
consult with their own legal counsel or tax adviser with respect to the
establishment and maintenance of any such plan.
Tax-Deferred Retirement Accounts
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a
comparison of the earnings in a personal savings account with those in an
IRA, assuming a $2,000 annual contribution, an 8% rate of return and a
39.6% federal income tax bracket and shows how much more retirement income
can accumulate within an IRA as opposed to a taxable individual savings
account.
Tax-Deferred Compounding1
Contributions Personal
Made Over: Savings IRA
------------- -------- -------
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ----------
1 The chart is for illustrative purposes only and does not represent
the performance of the Fund or any specific investment. It shows taxable
versus tax-deferred compounding for the periods and on the terms
indicated. Earnings in the IRA account will be subject to tax when
withdrawn from the account.
NET ASSET VALUE
Under the Investment Company Act, the Directors are responsible for
determining in good faith the fair value of securities of the Fund.
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each
class. The value of investments listed on a national securities exchange,
other than options on stocks and stock indices, is based on the last sale
prices as of the close of the New York Stock Exchange (which is currently
4:00 P.M., New York time), or, in the absence of recorded sales, at the
average of readily available closing bid and asked prices on such exchange.
Unlisted securities are valued at the average of the quoted bid and asked
prices in the over-the-counter market. Options on stocks and stock indices
traded on national securities exchanges are valued at the last sales price
at the close of options trading on such exchanges (which is currently 4:10
P.M., New York time). Securities or other assets for which market
quotations are not readily available are valued by appraisal at their fair
value as determined in good faith under procedures established by and under
the general supervision and responsibility of the Fund's Board of
Directors.
Short-term investments which mature in 60 days or less are valued at
amortized cost if their original maturity was 60 days or less, or by
amortizing their value on the 61st day prior to maturity if their original
maturity when acquired by the Fund was more than 60 days, unless such
valuation is determined not to represent fair value by the Board of
Directors.
The Fund will compute its net asset value once daily at 4:15 P.M., New
York time, on each day the New York Stock Exchange is open for trading
except on days on which no orders to purchase, sell or redeem Fund shares
have been received or days on which
B-24
<PAGE>
changes in the value of the Fund's portfolio securities do not affect the
net asset value. The New York Stock Exchange is closed on the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
In the event that the New York Stock Exchange or the national
securities exchanges on which stock options are traded adopt different
trading hours on either a permanent or temporary basis, the Board of
Directors of the Fund will reconsider the time at which net asset value is
computed. In addition, the Fund may compute its net asset value as of any
time permitted pursuant to any exemption, order or statement of the SEC or
its staff.
The net asset value of Class B and Class C shares will generally be
lower than the net asset value of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject.
It is expected, however, that the net asset value per share of each class
will tend to converge immediately after the recording of dividends which
will differ by approximately the amount of the distribution-related expense
accrual differential among the classes.
TAXES
The Fund is qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. In
order to qualify as a regulated investment company, the Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, proceeds from loans of securities and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such
securities or currencies; (b) derive less than 30% of its annual gross
income from gains from the sale or other disposition of securities held
less than three months; and (c) diversify its holdings so that, at the end
of each fiscal quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government securities and other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the market value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value
of its assets is invested in the securities of any one issuer (other than
U.S. Government securities).
As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and capital gains, if any,
that it distributes to its shareholders, provided that it distributes to
shareholders each year at least 90% of its net investment income and
short-term capital gains in excess of net long-term capital losses, if any.
The Fund intends to distribute to its shareholders all such income and any
gains. The Board of Directors of the Fund will determine at least once a
year whether to distribute any net long-term capital gains in excess of any
net short-term capital losses. In determining amounts of capital gains to
be distributed, any capital loss carryovers from prior years will be offset
against capital gains.
In addition to the foregoing, a 4% nondeductible excise tax will be
imposed on the Fund to the extent the Fund does not meet certain minimum
distribution requirements by the end of each calendar year. For this
purpose, any income or gain retained by the Fund which is subject to income
tax will be considered to have been distributed by year-end. In addition,
dividends declared in October, November and December payable to
shareholders of record on a specified date in October, November and
December and paid in the following January will be treated as having been
paid by the Fund and received by each shareholder on December 31 of the
calendar year in which declared. Under this rule, therefore, a shareholder
may be taxed in one year on dividends or distributions actually received in
January of the following year.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have been held by it for more
than one year except in certain cases where the Fund acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will
be short-term capital gains or losses. Gains and losses on the sale, lapse
or other termination of options on stock will generally be treated as gains
and losses from the sale of stock. For federal income tax purposes, when
call options which the Fund has written expire unexercised, the premiums
received by the Fund give rise to short-term capital gains at the time of
expiration. When a call written by the Fund is exercised, the selling price
of the stock is increased by the amount of the premium, and the gain or
loss on the sale of stock becomes long-term or short-term depending on the
stock's holding period. Certain futures contracts and options held by the
Fund will be required to be "marked to market" for federal income tax
purposes, that is, treated as having been sold at fair market value on the
last day of the Fund's fiscal year. Any gain or loss recognized on these
deemed sales of these futures contracts and options will be treated 60% as
long-term capital gain or loss, and the remainder will be treated as
short-term capital gain or loss. In some cases the Fund may be required to
defer the recognition of losses on sales of securities or the sale, lapse
or other termination of options to the extent of any unrealized gain on
related positions held by the Fund.
The "straddle" provisions of the Internal Revenue Code may also affect
the taxation of the Fund's transactions in options on securities, stock
index futures and options on futures, and limit the deductibility of any
loss from the disposition of a position to the amount of the unrealized
gain on any offsetting position. Further, any position in the straddle
(e.g., a put option acquired by the Fund) may affect the holding period of
the offsetting position for purposes of the 30% of gross income test
described above, and accordingly, the Fund's ability to enter into
straddles and dispose of the offsetting positions may be limited.
B-25
<PAGE>
Any loss realized on a sale, redemption or exchange of shares of the
Fund by a shareholder will be disallowed to the extent the shares are
replaced within a 61-day period (beginning 30 days before the disposition
of shares). Shares purchased pursuant to the reinvestment of a dividend
will constitute a replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for
purposes of calculating gain or loss realized upon a sale or exchange of
shares of the Fund.
The per share dividends on Class B and Class C shares will be lower
than the per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The
per share distributions of net capital gains, if any, will be paid in the
same amount for Class A, Class B and Class C shares. See "Net Asset Value."
Any dividends or distributions paid shortly after a purchase by an
investor may have the effect of reducing the per share net asset value of
the investor's shares by the per share amount of the dividends or
distributions. Furthermore, such dividends or distributions, although in
effect a return of capital, are subject to federal income taxes. Prior to
purchasing shares of the Fund, therefore, the investor should carefully
consider the impact of dividends or capital gains distributions which are
expected to be or have been announced.
Dividends and distributions may also be subject to state and local
taxes.
PERFORMANCE INFORMATION
Average Annual Total Return. The Fund may advertise its average annual
total return. Average annual total return is determined separately for
Class A, Class B and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.
Average annual total return is computed according to the following
formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or
10 year periods (or fractional portion thereof) of
a hypothetical $1,000 payment made at the beginning
of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial
or contingent deferred sales charges but does not take into account any
federal or state income taxes that may be payable upon redemption.
The average annual total return for Class A shares for the one year
period ended December 31, 1993 and the period January 22, 1990
(commencement of offering of Class A shares) through December 31, 1993 was
10.18% and 9.90%, respectively. The average annual total return for Class B
shares for the one, five and ten year periods ended on December 31, 1993
was 10.27%, 13.79% and 18.06%, respectively. During these periods, no Class
C shares were outstanding. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate Total Return. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class
B and Class C shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of
an investment in the Fund and is computed according to the following
formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value at the end of the 1, 5 or
10 year periods (or fractional portion thereof) of a
hypothetical $1,000 investment made at the beginning
of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial
or contingent deferred sales charges.
The aggregate total return for Class A shares for the one year period
ended December 31, 1993 and the period January 22, 1990 (commencement of
offering of Class A shares) through December 31, 1993 was 16.28% and
53.10%, respectively. The aggregate total return for Class B shares for the
one, five and ten year periods ended on December 31, 1993 was 15.27%,
91.83% and 426.88%, respectively. During these periods, no Class C shares
were outstanding.
B-26
<PAGE>
Yield. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B
and Class C shares. This yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the
maximum offering price per share on the last day of this period. Yield is
calculated according to the following formula:
a - b 6
YIELD = 2 [ (------- + 1) - 1 ]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund will
actually yield for any given period.
The Fund's 30-day yields for the period ended December 31, 1993 were
3.21% and 2.58% for Class A and Class B shares, respectively. During this
period, no Class C shares were outstanding.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance
of different types of investments over the long-term and the rate of
inflation.1
CHART
1 Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation-
1993 Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500
Stock Index, a market-weighted, unmanaged index of 500 common stocks in a
variety of industry sectors. It is a commonly used indicator of broad stock
price movements.This chart is for illustrative purposes only, and is not
intended to represent the performance of any particular investment or fund.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio
securities and cash and in that capacity maintains certain financial and
accounting books and records pursuant to an agreement with the Fund. See
"How the Fund is Managed-Custodian and Transfer and Dividend Disbursing
Agent" in the Prospectus.
B-27
<PAGE>
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One,
Edison, New Jersey 08837, serves as the Transfer and Dividend Disbursing
Agent of the Fund. PMFS is a wholly-owned subsidiary of PMF. PMFS provides
customary transfer agency services to the Fund, including the handling of
shareholder communications, the processing of shareholder transactions, the
maintenance of shareholder account records, the payment of dividends and
distributions and related functions. For these services, PMFS receives an
annual fee per shareholder account, in addition to a new account set-up fee
for each manually-established account and a monthly inactive zero balance
account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the year
ended December 31, 1993, the Fund incurred fees of approximately $4,920,800
for the services of PMFS.
Price Waterhouse, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity
audits the Fund's annual financial statements.
B-28
<PAGE>
PRUDENTIAL UTILITY FUND PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
VALUE
SHARES DESCRIPTION (NOTE 1)
- --------- --------------------------- -----------
LONG-TERM INVESTMENTS--88.2%
COMMON STOCKS--84.1%
COMMUNICATIONS--22.2%
993,600 Ameritech Corp........... $ 76,258,800
1,050,000 BCE, Inc................. 36,618,750
867,900 Bell Atlantic Corp....... 51,206,100
855,200 BellSouth Corp........... 49,494,700
8,200,000 British
Telecommunications PLC
(ADR) (United
Kingdom)................ 57,126,825
1,322,400 GTE Corp................. 46,284,000
1,175,000 MTC Electronic
Technologies, Ltd....... 10,942,188
2,037,600 NYNEX Corp............... 81,758,700
1,500,000 Pacific Telesis Group.... 81,000,000
165,000 Rochester Telephone
Corp.................... 7,445,625
17,700,000 SIP (Italy).............. 37,163,292
2,719,200 Southern New England
Telecommunications
Corp.................... 98,231,100
3,769,300 Sprint Corp.............. 130,983,175
14,147,500 STET (Italy)............. 36,248,583
1,346,000 Telebras (ADR)
(Brazil)................ 45,679,875
2,550,000 Telefonica de Espana
(ADR) (Spain)........... 99,450,000
1,576,300 Telefonos de Mexico (ADR)
(Mexico)................ 106,400,250
1,713,700 U.S. West, Inc........... 78,615,988
-------------
1,130,907,951
-------------
ELECTRIC POWER--34.7%
253,028 AES Corp................. 8,824,352
243,200 American Electric Power,
Inc..................... 9,028,800
400,000 Boston Edison Co......... 11,900,000
1,000,000 California Energy,
Inc.*................... 18,500,000
2,336,500 Centerior Energy Corp.... 30,666,563
701,800 Central Hudson Gas &
Electric Co............. 21,317,175
1,033,400 Central Louisiana
Electric Co............. 25,576,650
744,900 Central Maine Power
Co...................... 11,173,500
5,200,000 China Light & Power Co.,
Ltd. (Hong Kong)........ 38,020,055
910,200 Cincinnati Gas & Electric
Co...................... 25,030,500
3,700,000 CMS Energy Corp.......... 92,962,500
2,804,600 Commonwealth Edison
Co...................... 79,229,950
1,960,160 Companhia Energetica de
Minas (ADR) (Brazil)*... 35,121,747
63,200 Destec Energy, Inc.*..... 908,500
2,200,600 Detroit Edison Co........ 66,018,000
1,121,400 DPL, Inc................. 23,128,875
763,700 DQE, Inc................. 26,347,650
896,300 Eastern Utilities
Assoc................... 25,096,400
1,710,200 El Paso Electric
Co.*/**................. 4,596,163
1,247,700 Empresa Nacional de
Electricidad (ADR)
(Spain)................. 59,265,750
300,000 Enersis (ADR) (Spain).... 7,050,000
1,562,700 Entergy Corp............. 56,257,200
250,000 Evn Energ Versorg
(Austria)............... 32,089,399
2,937,800 General Public Utilities
Corp.................... 90,704,575
5,316,200 Gulf States Utilities
Co.*.................... 106,324,000
6,300,000 Iberdrola (Spain)........ 45,110,022
3,351,700 Illinois Power Co........ 74,156,363
887,600 Kansas City Power & Light
Co...................... 20,414,800
89,600 Kenetech Corp.*.......... 1,797,600
3,625,000 Long Island Lighting
Co...................... 88,359,375
6,000,000 National Power PLC
(United Kingdom)*....... 42,774,276
1,864,600 New York State Electric &
Gas Corp................ 57,336,450
1,160,000 Niagara Mohawk Power
Corp.................... 23,490,000
1,018,200 NIPSCO Industries,
Inc..................... 33,473,325
2,473,900 Northeast Utilities
Co...................... 58,755,125
770,000 Oester Elektrizita
(Austria)............... 46,923,108
See Notes to Financial Statements.
B-29
<PAGE>
PRUDENTIAL UTILITY FUND
VALUE
SHARES DESCRIPTION (NOTE 1)
- --------- --------------------------- -----------
ELECTRIC POWER (CONT'D)
3,011,900 Philadelphia Electric
Co...................... $ 91,109,975
2,103,400 Pinnacle West Capital
Corp.................... 47,063,575
499,700 PowerGen PLC
(United Kingdom)*....... 4,015,979
2,612,400 PSI Resources, Inc....... 69,228,600
274,100 Public Service Co. of
Colorado................ 8,805,463
2,057,000 Public Service Co. of
New Mexico*............. 23,141,250
921,200 Rochester Gas & Electric
Corp.................... 24,181,500
1,098,100 Sithe Energies, Inc.*.... 14,275,300
1,922,900 Southern Co.............. 84,847,964
115,000 United Illuminating
Co...................... 4,628,750
-------------
1,769,027,104
-------------
NATURAL GAS--27.2%
3,148,000 Arkla, Inc............... 24,790,500
283,650 Bay State Gas Co......... 8,084,025
2,521,300 British Gas PLC (ADR)
(United Kingdom)........ 129,846,950
850,000 Burlington Resources,
Inc..................... 36,018,750
3,962,875 Coastal Corp............. 111,455,859
2,500,000 Columbia Gas System,
Inc.*/**................ 55,937,500
1,100,000 Consolidated Natural Gas
Co...................... 51,700,000
5,000 Eastern Enterprises,
Inc..................... 127,500
1,477,600 El Paso Natural Gas
Co...................... 53,193,600
500,000 Energen Corp............. 10,750,000
1,356,000 Enron Corp............... 39,324,000
2,782,900 ENSERCH Corp............. 45,222,125
1,500,000 Equitable Resources,
Inc..................... 54,937,500
690,300 KN Energy, Inc........... 17,775,225
1,210,600 NICOR, Inc............... 33,896,800
700,000 Oryx Energy Co........... 12,075,000
3,544,300 Pacific Enterprises...... 84,177,125
4,806,900 Panhandle Eastern
Corp.................... 113,563,013
117,600 Providence Energy
Corp.................... 2,278,500
1,880,400 Questar Corp............. $ 62,053,200
990,000 Sonat Offshore Drilling,
Inc..................... 15,840,000
3,561,400 Sonat, Inc............... 102,835,425
205,400 Southwest Gas Corp....... 3,286,400
802,500 Talisman Energy, Inc.*... 17,607,339
521,800 Tejas Power Corp.*....... 5,087,550
7,700,000 TransCanada Pipelines,
Ltd. (Canada)........... 117,240,400
1,916,300 Transco Energy Co........ 27,067,738
2,200,000 Westcoast Energy, Inc.... 36,300,000
4,396,450 Williams Cos., Inc....... 107,163,462
161,150 Yankee Energy System,
Inc..................... 3,968,319
-------------
1,383,603,805
-------------
Total common stocks
(cost $3,518,021,463)... 4,283,538,860
-------------
PREFERRED STOCKS
ELECTRIC POWER
El Paso Electric Co. */**
7,000 $8.24.................... 504,000
10,300 $8.44.................... 741,600
5,700 $8.95.................... 410,400
-------------
Total preferred stocks
(cost $1,158,100)...... 1,656,000
------------
PRINCIPAL
AMOUNT
(000)
- ---------
BONDS--4.1%
COMMUNICATIONS
MTC Electronic Technologies, Ltd.,
$2,250 8.00%, 7/31/03........... 2,576,250
------------
ELECTRIC POWER--1.7%
Arkansas Power & Light
Co.,
5,000 10.00%, 2/1/20........... 5,373,250
See Notes to Financial Statements.
B-30
<PAGE>
PRUDENTIAL UTILITY FUND
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
--------- ------------------------------ -----------
ELECTRIC POWER (CONT'D)
Cincinnati Gas & Electric Co.,
$ 6,500 9.70%, 6/15/19............ $ 7,003,620
10,000 10.20%, 12/1/20........... 11,625,000
Cleveland Electric Illumination Co.,
10,000 9.375%, 3/1/17............ 10,037,500
Commonwealth Edison Co.,
10,000 9.625%, 7/1/19............ 10,649,300
Niagara Mohawk Power Corp.,
10,000 9.50%, 3/1/21............. 11,299,900
Ohio Edison Co.,
10,000 9.75%, 7/15/19............ 10,875,100
Texas Utilities Co.,
5,000 9.75%, 5/1/21............. 6,031,150
Virginia Electric & Power Co.,
10,000 9.75%, 2/1/19............. 10,660,300
--------------
83,555,120
--------------
NATURAL GAS--2.4%
Arkla, Inc.,
20,000 10.00%, 11/15/19.......... 23,000,000
Burlington Resources,
Inc.,
10,000 8.50%, 10/1/01............ 11,257,900
15,000 9.125%, 10/1/21........... 18,072,600
Coastal Corp.,
5,000 8.125%, 9/15/02........... 5,231,900
15,000 9.625%, 5/15/12........... 17,245,800
Columbia Gas System, Inc.,*/**
2,500 10.25%, 5/1/99............ 2,921,875
1,031 10.25%, 8/1/11............ 1,257,810
1,000 10.50%, 6/1/12............ 1,200,000
8,180 10.15%, 11/1/13........... 9,816,000
Oryx Energy Co.,
2,000 9.50%, 11/1/99............ 2,153,120
1,000 7.50%, 5/15/14............ 965,000
Transcontinental Gas Pipe Line,
11,000 8.875%, 9/15/02........... 11,591,140
Williams Cos., Inc.,
$ 15,000 8.875%, 9/15/12........... $ 16,925,100
--------------
121,638,245
--------------
Total bonds
(cost $191,604,930)..... 207,769,615
--------------
Total long-term
investments
(cost $3,710,784,493)... 4,492,964,475
-------------
SHORT-TERM INVESTMENTS--12.5%
BONDS--7.1%
First Union National Bank of
North Carolina,
105,569 3.00%, 1/3/94............. 105,569,000
Republic National Bank,
254,000 3.188%, 1/3/94............ 254,000,000
--------------
Total bonds
(cost $359,569,000).... 359,569,000
--------------
REPURCHASE AGREEMENT--5.4%
Joint Repurchase Agreement Account,
274,219 3.153%, 1/3/94
(cost $274,219,000; Note
5)....................... 274,219,000
--------------
Total short-term
investments
(cost $633,788,000)..... 633,788,000
--------------
TOTAL INVESTMENTS--100.7%
(cost $4,344,572,493;
Note 4).................. 5,126,752,475
Liabilities in excess of
other
assets--(0.7%).......... (34,512,175)
--------------
NET ASSETS--100%..........$5,092,240,300
==============
-------------------
*Non-income producing securities.
**Issuer in bankruptcy.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-31
<PAGE>
PRUDENTIAL UTILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,
ASSETS 1993
--------------
Investments, at value (cost $4,344,572,493) ................. $5,126,752,475
Dividends and interest receivable ........................... 17,346,113
Receivable for Fund shares sold ............................. 7,348,316
Deferred expenses and other assets .......................... 97,358
--------------
Total assets ............................................ 5,151,544,262
--------------
LIABILITIES
Payable for investments purchased ........................... 42,257,025
Payable for Fund shares reacquired .......................... 9,277,411
Distribution fee payable .................................... 4,055,409
Accrued expenses and other liabilities ...................... 2,035,501
Management fee payable ...................................... 1,678,616
--------------
Total liabilities ....................................... 59,303,962
--------------
NET ASSETS .................................................. $5,092,240,300
==============
Net assets were comprised of:
Common stock, at par ...................................... $ 5,255,245
Paid-in capital in excess of par .......................... 3,865,379,704
--------------
3,870,634,949
Undistributed net investment income ....................... 415,726,618
Accumulated net realized gain on investments .............. 23,384,058
Net unrealized appreciation on investments
and foreign currencies .................................. 782,494,675
--------------
Net assets, December 31, 1993 ............................. $5,092,240,300
==============
Class A:
Net asset value and redemption price per share
($336,635,764 / 34,645,133 shares of common
stock issued and outstanding) ........................... $9.72
Maximum sales charge (5.25% of offering price) ............ .54
Maximum offering price to public .......................... $10.26
Class B:
Net asset value, offering price and redemption
price per share ($4,755,604,536 / 490,879,345 of
common stock issued and outstanding) .................... $9.69
==============
See Notes to Financial Statements.
B-32
<PAGE>
PRUDENTIAL UTILITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31,
NET INVESTMENT INCOME 1993
------------
Income
Dividends (net of foreign withholding
taxes of $2,647,319) ................................... $139,439,683
Interest (net of foreign withholding
taxes of $10,875) ...................................... 42,346,733
------------
Total income ........................................... 181,786,416
------------
Expenses
Distribution fee--Class A ................................ 573,660
Distribution fee--Class B ................................ 43,080,963
Management fee ........................................... 18,383,363
Transfer agent's fees and expenses ....................... 6,400,000
Reports to shareholders .................................. 1,180,000
Custodian's fees and expenses ............................ 660,000
Registration fees ........................................ 505,000
Insurance ................................................ 114,000
Legal fees ............................................... 81,000
Audit fee ................................................ 62,000
Directors' fees .......................................... 54,000
Miscellaneous ............................................ 34,354
------------
Total expenses ......................................... 71,128,340
------------
Net investment income ...................................... 110,658,076
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain (loss) on:
Security transactions .................................... 216,838,459
Foreign currency transactions ............................ (937,074)
------------
215,901,385
------------
Net change in unrealized appreciation on:
Securities ............................................... 257,223,087
Foreign currencies ....................................... 540,467
------------
257,763,554
------------
Net gain on investments and foreign currencies ............. 473,664,939
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................ $584,323,015
============
See Notes to Financial Statements.
PRUDENTIAL UTILITY FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) -------------------------------
IN NET ASSETS 1993 1992
-------------- --------------
Operations
Net investment income .................... $ 110,658,076 $ 107,121,511
Net realized gain on investment and
foreign currency transactions .......... 215,901,385 89,434,724
Net change in unrealized appreciation of
investments and foreign currencies ..... 257,763,554 92,759,598
-------------- --------------
Net increase in net assets resulting
from operations ........................ 584,323,015 289,315,833
-------------- --------------
Net equalization credits ................... 95,670,312 53,394,394
-------------- --------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A ................................ (8,808,902) (6,100,105)
Class B ................................ (99,427,992) (101,021,406)
-------------- --------------
(108,236,894) (107,121,511)
-------------- --------------
Distributions from net realized gains
Class A ................................ (13,264,520) (4,685,002)
Class B ................................ (189,046,028) (83,068,066)
-------------- --------------
(202,310,548) (87,753,068)
-------------- --------------
Fund share transactions (Note 6)
Net proceeds from shares subscribed ...... 1,512,896,198 844,256,938
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions ............ 260,462,818 162,399,270
Cost of shares reacquired ................ (689,440,495) (444,645,324)
-------------- --------------
Net increase in net assets from Fund
share transactions ..................... 1,083,918,521 562,010,884
-------------- --------------
Total increase ............................. 1,453,364,406 709,846,532
NET ASSETS
Beginning of year .......................... 3,638,875,894 2,929,029,362
-------------- --------------
End of year ................................ $5,092,240,300 $3,638,875,894
============== ==============
See Notes to Financial Statements.
B-33
<PAGE>
PRUDENTIAL UTILITY FUND
Notes to Financial Statements
Prudential-Bache Utility Fund, Inc., doing business as Prudential Utility
Fund (the "Fund"), is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. Its 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 ability of issuers of certain debt securities held
by the Fund to meet their obligations may be affected by economic developments
in a specific industry or region.
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATION: Investments traded on a national securities exchange are
valued at the last reported sales price on the primary exchange on which they
are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued based on
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.
In connection with repurchase agreements with U.S. financial institutions,
it is the Fund's policy that its custodian takes possession of the underlying
collateral securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing daily rate of exchange;
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the year, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the year. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of portfolio securities sold during
the year.
Net realized losses on foreign currency transactions of $937,074 represents
net foreign exchange losses from sales and maturities of short-term securities,
disposition of foreign currency, gains or losses realized between the trade and
settlement dates on security transactions, and the difference between amounts of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the US dollar equivalent amounts actually received or paid. Net currency
gains and losses from valuing foreign currency denominated assets, except
portfolio securities, and liabilities at year end exchange rates are reflected
as a component of unrealized appreciation on foreign currencies.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the possibility of political and economic
instability and the level of governmental supervision and regulation of foreign
securities markets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
and currencies are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date; interest income is recorded on the accrual
basis. The Fund amortizes discounts on purchases of portfolio securities as
adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid quarterly. The Fund will distribute at least annually any net capital
gains in excess of loss carryforwards. Dividends and distributions are recorded
on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
B-34
<PAGE>
EQUALIZATION: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of shares
of common stock, equivalent on a per share basis to the amount of undistributed
net investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
TAXES: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
RECLASSIFICATION OF CAPITAL ACCOUNTS: Effective January 1, 1993, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to disclose better the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to increase paid-in capital in excess of par by $18,691,112,
decrease undistributed net investment income by $4,507,069 and decrease
accumulated net realized gain on investments by $14,184,043 compared to amounts
previously reported through December 31, 1992. For the year ended December 31,
1993, the Fund reclassified $1,704,541 of net foreign currency losses to
undistributed net investment income from accumulated net realized gains on
investments. Net investment income, net realized gains and net assets were not
affected by this change.
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
("PMF"). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
Pursuant to a subadvisory agreement between PMF and The Prudential Investment
Corporation ("PIC"), PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the cost of compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
Prior to October 1, 1993, the management fee paid PMF was computed daily
and payable monthly at an annual rate of .60% of the Fund's average daily net
assets up to $250 million, .50% of the next $500 million, .45% of the next $750
million, .40% of the next $500 million and .35% of the average daily net assets
of the Fund in excess of $2 billion. Effective October 1, 1993, the management
fee was reduced so that it is computed as follows: .60% of the Fund's average
daily net assets up to $250 million, .50% of the next $500 million, .45% of the
next $750 million, .40% of the next $500 million, .35% of the next $2 billion,
.325% of the next $2 billion and .30% of the average daily net assets of the
Fund in excess of $6 billion.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), which acts as the distributor of the Class A shares
of the Fund, and Prudential Securities Incorporated ("PSI"), which acts as
distributor of the Class B shares of the Fund (collectively, the
"Distributors"). To reimburse the Distributors for their expenses incurred in
distributing and servicing the Fund's Class A and B shares, the Fund, pursuant
to plans of distribution, pays the Distributors a reimbursement, accrued daily
and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its 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. Such expenses under the Class A
Plan were .20 of 1% of the average daily net assets of the Class A shares for
the year ended December 31, 1993. PMFD pays various broker-dealers including PSI
and Pruco Securities Corporation ("Prusec"), affiliated broker-dealers, for
account servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its distribution
related expenses with respect to Class B shares at an annual rate of up to 1% of
the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payments
of commissions and account servicing fees to financial advisers and an
allocation for overhead and other distribution related expenses, interest and/or
carrying charges, the cost of printing and mailing prospectuses to potential
investors and of advertising incurred in connection with the distribution of
shares.
The Distributors recover the distribution expenses and service fees
incurred through the receipt of reimbursement payments from the Fund under the
plans and the receipt of initial sales charges (Class A only) and contingent
deferred sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $5,755,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1993. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons and
incurred other distribution costs.
With respect to the Class B Plan, at any given time, the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
B-35
<PAGE>
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. PSI advised the Fund that for the year ended
December 31, 1993, it received approximately $4,330,000 in contingent deferred
sales charges imposed upon redemptions by certain shareholders. PSI, as
distributor, has also advised the Fund that at December 31, 1993, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $43,949,000.
This amount may be recovered through future payments under the Class B Plan or
contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the
Fund would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed under the Class B Plan or recovered through
contingent deferred sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended December 31,
1993, the Fund incurred fees of approximately $4,920,800 for the services of
PMFS. As of December 31, 1993, approximately $454,100 of such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of Operations also
include certain out-of-pocket expenses paid to non-affiliates.
For the year ended December 31, 1993, PSI earned approximately $366,600 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended December 31, 1993, were $1,567,887,079 and $983,069,399,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1993
was $4,345,786,537 and, accordingly, net unrealized appreciation for federal
income tax purposes was $780,965,938 (gross unrealized
appreciation--$846,478,073; gross unrealized depreciation-- $65,512,135).
NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations.
As of December 31, 1993, the Fund had a 22.9% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $274,219,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the collateral therefor was as follows:
Barclays de Zoete Wedd, Inc., 3.10%, in the principal amount of
$100,000,000, repurchase price $100,025,833, due 1/3/94; collateralized by
$32,000,000 U.S. Treasury Notes, 7.50%, due 11/15/01; $7,305,000 U.S. Treasury
Notes, 8.50%, due 2/15/00 and $49,000,000 U.S. Treasury Notes, 8.875%, due
11/15/98; approximate aggregate value including accrued interest--$102,043,014.
Bear, Stearns & Co., 3.18%, in the principal amount of $323,000,000,
repurchase price $323,085,595, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Notes, 3.875%, due 3/31/95; $5,745,000 U.S. Treasury Notes, 4.25%, due
7/31/95; $85,000 U.S. Treasury Notes, 7.375%, due 5/15/96; $30,000,000 U.S.
Treasury Notes, 5.625%, due 1/31/98 and $80,030,000 U.S. Treasury Notes, 7.50%,
due 11/15/01; approximate aggregate value including accrued
interest--$329,564,341.
Goldman, Sachs & Co., 3.10%, in the principal amount of $399,000,000,
repurchase price $399,103,075, due 1/3/94; collateralized by $363,720,000 U.S.
Treasury Bonds, 7.50%, due 11/15/16, approximate value including accrued
interest--$408,104,889.
Kidder, Peabody & Co. Inc., 3.20%, in the principal amount of $375,000,000,
repurchase price $375,100,000, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Bonds, 11.625%, due 11/15/04; $38,000,000 U.S. Treasury Bonds, 12.75%,
due 11/15/10; $11,730,000 U.S. Treasury Notes, 7.25%, due 11/15/96; $90,000 U.S.
Treasury Bonds, 9.00%, due 2/15/94 and $15,000,000 U.S. Treasury Notes, 7.375%,
due 5/15/96; approximate aggregate value including accrued
interest--$382,608,562.
NOTE 6. CAPITAL
The Fund offers both Class A and Class B shares. Class A shares are sold with a
front-end sales charge of up to 5.25%. Class B shares are sold with a contingent
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Both classes of shares have equal rights as to
earnings, assets and voting privileges except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan.
The Board of Directors approved an amendment to the Fund's Articles of
Incorporation increasing the number of authorized shares to 2 billion at $.01
par value per share.
B-36
<PAGE>
Transactions in shares of common stock for the years ended December 31, 1993 and
1992 were as follows:
Class A SHARES AMOUNT
------- ----------- --------------
Year ended December 31, 1993:
Shares sold .................. 14,181,284 $ 187,214,286
Shares issued in
reinvestment of
dividends and
distributions .............. 1,885,228 20,510,338
Shares issued as a result
of 2 for 1 stock
split ...................... 14,410,831 --
Shares reacquired ............ (7,054,589) (86,988,577)
----------- --------------
Net increase in shares
outstanding ................ 23,422,754 $ 120,736,047
=========== ==============
Year ended December 31, 1992:
Shares sold .................. 8,200,371 $ 144,749,564
Shares issued in
reinvestment of
dividends and
distributions .............. 570,475 10,033,103
Shares reacquired ............ (3,903,500) (69,439,087)
----------- --------------
Net increase in shares
outstanding ................ 4,867,346 $ 85,343,580
=========== ==============
Class B SHARES AMOUNT
------- ----------- --------------
Year ended December 31, 1993:
Shares sold .................. 111,930,241 $1,325,681,912
Shares issued in
reinvestment of
dividends and
distributions .............. 24,343,642 239,952,480
Shares issued as a result
of 2 for 1 stock
split ...................... 216,583,756 --
Shares reacquired ............ (53,929,305) (602,451,918)
----------- --------------
Net increase in shares
outstanding ................ 298,928,334 $ 963,182,474
=========== ==============
Year ended December 31, 1992:
Shares sold .................. 44,195,557 $ 699,507,374
Shares issued in
reinvestment of
dividends and
distributions .............. 9,463,606 152,366,167
Shares reacquired ............ (23,484,866) (375,206,237)
----------- --------------
Net increase in shares
outstanding ................ 30,174,297 $ 476,667,304
=========== ==============
NOTE 7. CONTINGENCY
On October 12, 1993 a lawsuit was instituted against the Fund, PMF, PIC, PSI 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 Fund 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. 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 Fund's
B-37
<PAGE>
PRUDENTIAL UTILITY FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------------------------------
JANUARY 22, CLASS B
1990++ --------------------------------------------
YEARS ENDED THROUGH
DECEMBER 31, DECEMBER YEARS ENDED DECEMBER 31,
------------------------ 31, --------------------------------------------
1993 1992 1991 1990 1993 1992 1991 1990 1989**
------ ------ ------ ----------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE*:
Net asset value,
beginning of period.... $ 8.97 $ 8.72 $ 7.63 $ 8.78 $ 8.96 $ 8.71 $ 7.63 $ 9.17 $ 7.31
------ ------ ------ --------- ------ ------ -------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... .33 .38 .39 .36 .24 .31 .32 .31 .36
Net realized and
unrealized gains
(losses) on investment
and foreign currency
transactions........... 1.12 .45 1.10 (.51) 1.12 .46 1.10 (.91) 2.30
------ ------ ------ --------- ------ ------ -------- ------ ------
Total from investment
operations.......... 1.45 .83 1.49 (.15) 1.36 .77 1.42 (.60) 2.66
------ ------ ------ --------- ------ ------ -------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (.29) (.34) (.39) (.40) (.22) (.28) (.33) (.34) (.36)
Distributions from net
realized gains......... (.41) (.24) (.01) (.60) (.41) (.24) (.01) (.60) (.44)
------ ------ ------ --------- ------ ------ -------- ------ ------
Total
distributions....... (.70) (.58) (.40) (1.00) (.63) (.52) (.34) (.94) (.80)
------ ------ ------ --------- ------ ------ -------- ------ ------
Net asset value, end of
period................. $ 9.72 $ 8.97 $ 8.72 $ 7.63 $ 9.69 $ 8.96 $ 8.71 $ 7.63 $ 9.17
====== ====== ====== ========= ====== ====== ======== ====== ======
TOTAL RETURN#............ 16.28% 9.88% 19.95% (1.53)% 15.27% 9.02% 19.01% (6.48)% 37.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000,000).............. $337 $201 $111 $73 $4,756 $3,438 $2,818 $2,395 $2,306
Average net assets
(000,000).............. $287 $149 $85 $51 $4,308 $3,027 $2,529 $2,315 $2,037
Ratios to average net
assets:
Expenses, including
distribution fees..... .80% .81% .87% .97%+ 1.60% 1.61% 1.67% 1.73% 1.46%
Expenses, excluding
distribution fees..... .60% .61% .67% .77%+ .60% .61% .67% .74% .73%
Net investment
income................ 3.16% 4.14% 4.69% 4.78%+ 2.36% 3.34% 3.89% 3.94% 4.19%
Portfolio turnover
rate................... 24% 24% 38% 53% 24% 24% 38% 53% 75%
<FN>
- ---------------
* Restated to reflect 2 for 1 stock split paid July 6, 1993 to shareholders
of record July 2, 1993.
** Based on average month-end shares outstanding.
+ Annualized.
++ Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than one full year are not
annualized.
</FN>
</TABLE>
See Notes to Financial Statements.
B-38
<PAGE>
- --------------------------------------------------------------------------------
R E P O R T O F I N D E P E N D E N T A C C O U N T A N T S
- --------------------------------------------------------------------------------
To Board of Directors and Shareholders of
Prudential Utility Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Utility Fund (the
"Fund") at December 31, 1993, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1993 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 8, 1994
B-39
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial Statements included in the Prospectus constituting
Part A of this Registration Statement:
Financial Highlights.
(2) Financial Statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at December 31, 1993.
Statement of Assets and Liabilities at December 31, 1993.
Statement of Operations for the Year Ended December 31, 1993.
Statement of Changes in Net Assets for the Years Ended
December 31, 1993 and 1992.
Notes to Financial Statements.
Financial Highlights for the Five Years Ended December 31, 1993.
Report of Independent Accountants.
(b) Exhibits:
1. (a) Articles of Incorporation of the Registrant, as amended,
incorporated by reference to Exhibit 1 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on May 1,
1981.
(b) Amendment to Articles of Incorporation, incorporated by
reference to Exhibit 1(b) to Post-Effective Amendment No. 12
to the Registration Statement on Form N-1A (File No. 2-72097)
filed on November 3, 1989.
(c) Form of Amended and Restated Articles of Incorporation.*
2. (a) By-Laws of the Registrant, as amended, incorporated by
reference to Exhibit 2 to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A (File No. 2-72097)
filed on March 1, 1988.
(b) Amendment to By-Laws, incorporated by reference to
Exhibit 2(b) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A (File No. 2-72097) filed
on December 28, 1989.
(c) Form of Amended and Restated By-Laws.*
4. (a) Specimen Stock Certificate issued by the Registrant,
incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A
(File No. 2-72097) filed on March 1, 1988.
(b) Specimen Stock Certificate for Class A shares,
incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 14 to the Registration Statement on Form N-1A
(File No. 2-72097) filed on April 30, 1990.
(c) Instruments defining rights of shareholders.
5. (a) Amended and Restated Management Agreement between the
Registrant and Prudential Mutual Fund Management, Inc.,
incorporated by reference to Exhibit 5(a) to Post-Effective
Amendment No. 14 to the Registration Statement on Form N-1A
(File No. 2-72097) filed on April 30, 1990.
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation,
incorporated by reference to Exhibit 5(b) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A
(File No. 2-72097) filed on March 1, 1988.
(c) Amendment to Management Agreement between the Registrant
and Prudential Mutual Fund Management, Inc., incorporated by
reference to Exhibit 5(c) to Post-Effective Amendment No. 12
to the Registration Statement on Form N-1A (File No. 2-72097)
filed on November 3, 1989.
(d) Form of Amended Management Agreement.*
6. (a)(i) Underwriting Agreement, incorporated by reference to
Exhibit 6(a)(i) to the Registration Statement on Form N-1A
(File No. 2-72097) filed on May 1, 1981.
(ii) Selected Dealers Agreement (Initial Offering),
incorporated by reference to Exhibit 6(a)(ii) to the
Registration Statement on Form N-1A (File No. 2-72097) filed
on May 1, 1981.
C-1
<PAGE>
(b)(i) Distribution Agreement, as amended, between the
Registrant and Prudential-Bache Securities Inc, incorporated
by reference to Exhibit 6(b)(i) to the Registration Statement
on Form N-1A (File No. 2-72097) filed on May 1, 1981.
(ii) Selected Dealers Agreement (Continuous Offering),
incorporated by reference to Exhibit 6(b)(ii) to the
Registration Statement on Form N-1A (File No. 2-72097) filed
on May 1, 1981.
(c) Amended and restated Distribution Agreement between the
Registrant and Prudential Mutual Fund Distributors, Inc. for
Class A shares.*
(d) Amended and restated Distribution Agreement between the
Registrant and Prudential Securities Inc. for Class B shares.*
(e) Form of Distribution Agreement for Class A shares.*
(f) Form of Distribution Agreement for Class B shares.*
(g) Form of Distribution Agreement for Class C shares.*
8. (a) Custodian Agreement between the Registrant and State
Street Bank and Trust Company, incorporated by reference to
Exhibit 8 to the Registration Statement on Form N-1A (File No.
2-72097) filed on May 1, 1981.
(b) Joint Custody Agreement between the Registrant and State
Street Bank & Trust, incorporated by reference to Exhibit 8(b)
to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on April 30,
1991.
9. Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services, Inc., incorporated by
reference to Exhibit 9 to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A (File No. 2-72097)
filed on March 1, 1988.
10. Opinion of Sullivan & Cromwell, incorporated by reference to
Exhibit 10 to the Registration Statement on Form N-1A (File
No. 2-72097) filed on May 1, 1981.
11. Consent of Independent Accountants.*
13. Purchase Agreement, incorporated by reference to Exhibit 13
to the Registration Statement on Form N-1A (File No. 2-72097)
filed on May 1, 1981.
15. (a) Amended and restated Distribution and Service Plan for
Class A shares.*
(b) Amended and restated Distribution and Service Plan for
Class B shares.*
(c) Form of Distribution and Service Plan for Class A shares.*
(d) Form of Distribution and Service Plan for Class B shares.*
(e) Form of Distribution and Service Plan for Class C shares.*
16. (a) Calculation of Performance Information for Class B
shares, incorporated by reference to Exhibit 16 to
Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A (File No. 2-72097) filed on March 1, 1988.
(b) Schedule of Computation of Performance Quotations relating
to Average Annual Total Return for Class A shares,
incorporated by reference to Exhibit 16(b) to Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A
(File No. 2-72097) filed on April 30, 1991.
(c) Schedule of Computation of Performance Quotations relating
to Aggregate Total Return for Class A and Class B shares,
incorporated by reference to Exhibit 16(c) to Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A
(File No. 2-72097) filed on February 25, 1993.
Other Exhibits
Power of Attorney for:
Lawrence C. McQuade**
Robert R. Fortune**
Delayne D. Gold**
Harry A. Jacobs, Jr.**
Thomas A. Owens, Jr.**
Robert J. Schultz**
Merle T. Welshans**
- -----------------
*Filed herewith.
**Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-1A (File No. 2-72097) filed on November 3,
1989.
C-2
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of March 31, 1994 there were 20,976 and 285,061 record holders of
Class A and Class B common stock, $.01 par value per share, of the
Registrant, respectively.
Item 27. Indemnification.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the 1940 Act) and pursuant to Article VI of the Fund's By-Laws
(Exhibit 2 to the Registration Statement), officers, directors, employees
and agents of the Registrant will not be liable to the Registrant, any
stockholder, officer, director, employee, agent or other person for any
action or failure to act, except for bad faith, willful misfeasance, gross
negligence or reckless disregard of duties, and those individuals may be
indemnified against liabilities in connection with the Registrant, subject
to the same exceptions. Section 2-418 of Maryland General Corporation Law
permits indemnification of directors who acted in good faith and reasonably
believed that the conduct was in the best interests of the Registrant. As
permitted by Section 17(i) of the 1940 Act, pursuant to Section 10 of each
Distribution Agreement (Exhibits 6(c) and (d) to the Registration
Statement), each Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad faith,
gross negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (Securities Act) may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in connection
with the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such director, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the 1940 Act and will be governed by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims
against such officers and directors, to the extent such officers and
directors are not found to have committed conduct constituting willful
misfeasance, bad faith, gross negligence or reckless disregard in the
performance of their duties. The insurance policy also insures the
Registrant against the cost of indemnification payments to officers and
directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Sections 17(h) and
17(i) of such Act remain in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
(i) Prudential Mutual Fund Management, Inc. (PMF)
See "How the Fund Is Managed-Manager" in the Prospectus constituting
Part A of this Registration Statement and "Manager" in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the
Securities and Exchange Commission, the text of which is hereby
incorporated by reference (File No. 801-31104, filed on November 13, 1987).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President and Director of Marketing, PMF
President and
Director of
Marketing
John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance Company of
Two Gateway Center America (Prudential); Senior Vice President (PIC)
Newark, NJ 07102
Susan C. Cote Senior Vice Senior Vice President, PMF; Senior Vice President, Prudential
President Securities
Fred A. Fiandaca Executive Vice Executive Vice President, Chief Operating Officer and Director, PMF;
Raritan Plaza One President, Chairman, Chief Operating Officer and Director, Prudential
Edison, NJ 08847 Chief Operating Mutual Fund Services, Inc.
Officer and
Director
Stephen P. Fisher Senior Vice Senior Vice President, PMF; Senior Vice President, Prudential
President Securities
Frank W. Giordano Executive Vice Executive Vice President, General Counsel and Secretary, PMF;
President, Executive Vice President, Prudential Securities
General
Counsel and
Secretary
Robert F. Gunia Executive Vice Executive Vice President, Chief Administrative Officer, Chief Financial
President, Chief Officer, Treasurer and Director, PMF; Senior Vice President,
Administrative Prudential Securities
Officer, Chief
Financial Officer,
Treasurer and
Director
Eugene B. Heimberg Director Senior Vice President, Prudential; President, Director and
Prudential Plaza Chief Investment Officer, PIC
Newark, NJ 07101
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President and Director, Prudential Securities; Director,
Prudential Securities Group, Inc. ("PSG")
Richard A. Redeker President, President, Chief Executive Officer and Director, PMF; Executive Vice
Chief President, Director and Member of Operating Committee,
Executive Prudential Securities; Director, PSG
Officer
and Director
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant Secretary, PMF;
President, Senior Vice President and Senior Counsel, Prudential Securities
Senior
Counsel and
Assistant
Secretary
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ 07102
(ii) Prudential Investment Corporation (PIC)
See "How the Fund is Managed-Subadviser" in the Prospectus constituting
Part A of this Registration Statement and "Subadviser" in the Statement of
Additional Information constituting Part B of this Registration Statement.
C-4
<PAGE>
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address
of each person is Prudential Plaza, Newark, NJ 07101.
</TABLE>
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President, Senior Vice President, Chief Financial and Chief Compliance
Chief Financial Officer, PIC; Vice President, Prudential
and Chief
Compliance Officer
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102
Eugene B. Heimberg President, Director Senior Vice President, Prudential; President, Director and
and Chief Investment Chief Investment Officer, PIC
Officer
Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director, PIC
Harry E. Knapp, Jr. Vice President Vice President, Prudential; Vice President, PIC
Four Gateway Center
Newark, NJ 07102
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice President, PIC
Four Gateway Center
Newark, NJ 07102
Robert E. Riley Executive Vice Executive Vice President, Prudential; Executive Vice
500 Boyleston Ave. President President, PIC; Director, PSG
Boston, MA 02199
James W. Stevens Executive Vice Executive Vice President, Prudential; Executive Vice President, PIC;
Four Gateway Center President Director, PSG
Newark, NJ 07102
Robert C. Winters Director Chairman of the Board and Chief Executive Officer, Prudential;
Director, PIC; Chairman of the Board, PSG
Claude J. Zinngrabe, Jr. Executive Vice President Vice President, Prudential; Executive Vice President, PIC
Item 29. Principal Underwriters
(a)(i) Prudential Securities
Prudential Securities is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust and
for Class B shares of Prudential Adjustable Rate Securities Fund, Inc., The
BlackRock Government Income Trust, Prudential California Municipal Fund
(California Series and California Income Series), Prudential Equity Fund,
Inc., Prudential Equity Income Fund, Prudential FlexiFund, Prudential
Global Fund, Inc., Prudential-Bache Global Genesis Fund, Inc. (d/b/a
Prudential Global Genesis Fund), Prudential-Bache Global Natural Resources
Fund, Inc. (d/b/a Prudential Global Natural Resources Fund),
Prudential-Bache GNMA Fund, Inc. (d/b/a Prudential GNMA Fund),
Prudential-Bache Government Plus Fund, Inc. (d/b/a Prudential Government
Plus Fund), Prudential Growth Fund, Inc., Prudential-Bache National
Municipals Fund, Inc. (d/b/a Prudential National Municipals Fund),
Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a Prudential Growth
Opportunity Fund), Prudential IncomeVertible\'AE Fund, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund, Inc.,
Prudential Municipal Bond Fund, Prudential Municipal Series Fund (except
Connecticut Money Market Series, Massachusetts Money Market Series, New
York Money Market Series, New Jersey Money Market Series and Florida
Series), Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential High
Yield Fund), Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential U.S. Government Fund, Prudential-Bache
Utility Fund, Inc. (d/b/a Prudential Utility Fund), Global Utility Fund,
Inc. and Nicholas- Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund). Prudential Securities is also a depositor for the following unit
investment trusts:
C-5
<PAGE>
The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trust
Government Securities Equity Trust
National Municipal Trust
(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series and Class A
shares of California Income Series and California Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money
Market Series), Prudential-Bache MoneyMart Assets (d/b/a Prudential
MoneyMart Assets), Prudential Municipal Series Fund (Connecticut Money
Market Series, Massachusetts Money Market Series, New York Money Market
Series, New Jersey Money Market Series and Florida Series), Prudential
Institutional Liquidity Portfolio, Inc., Prudential-Bache Special Money
Market Fund, Inc. (d/b/a Prudential Special Money Market Fund), Prudential-
Bache Structured Maturity Fund, Inc. (d/b/a/ Prudential Structured Maturity
Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund), and for Class A shares of Prudential Adjustable Rate
Securities Fund, Inc., The BlackRock Government Income Trust, Prudential
California Municipal Fund (California Series), Prudential Equity Fund,
Inc., Prudential Equity Income Fund, Prudential FlexiFund, Prudential
Global Fund, Inc., Prudential-Bache Global Genesis Fund, Inc. (d/b/a
Prudential Global Genesis Fund), Prudential-Bache Global Natural Resources
Fund, Inc. (d/b/a Prudential Global Natural Resources Fund),
Prudential-Bache GNMA Fund, Inc., (d/b/a Prudential GNMA Fund),
Prudential-Bache Government Plus Fund, Inc. (d/b/a Prudential Government
Plus Fund), Prudential Growth Fund, Inc., Prudential-Bache Growth
Opportunity Fund, Inc. (d/b/a Prudential Growth Opportunity Fund),
Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential High Yield Fund),
Prudential IncomeVertible\'AE Fund, Inc., Prudential Intermediate Global
Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal
Bond Fund, Prudential Municipal Series Fund (Arizona Series, Florida
Series, Georgia Series, Maryland Series, Massachusetts Series, Michigan
Series, Minnesota Series, New Jersey Series, North Carolina Series, Ohio
Series and Pennsylvania Series), Prudential-Bache National Municipals Fund,
Inc. (d/b/a Prudential National Municipals Fund), Prudential Pacific Growth
Fund, Inc., Prudential Short-Term Global Income Fund, Inc., Prudential U.S.
Government Fund and Prudential-Bache Utility Fund, Inc. (d/b/a Prudential
Utility Fund, Global Utility Fund, Inc., and Nlcholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund).
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
</TABLE>
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
<S> <C> <C>
Alan D. Hogan .............. Executive Vice President, Chief Administrative None
Officer and Director
Howard A. Knight ........... Executive Vice President, Director, Corporate None
Strategy and New Business Development
George A. Murray ........... Executive Vice President and Director None
John P. Murray ............. Executive Vice President and Director of Risk None
Management
Leland B. Paton ............ Executive Vice President and Director None
Richard A. Redeker ......... Director Director
Hardwick Simmons ........... Chief Executive Officer, President and Director None
Lee Spencer ................ Interim General Counsel None
</TABLE>
(ii) Prudential Mutual Fund Distributors, Inc.
<TABLE>
<S> <C> <C>
Joanne Accurso-Soto ........ Vice President None
Dennis Annarumma ........... Vice President, Assistant Treasurer and None
Assistant Comptroller
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
<S> <C> <C>
Phyllis J. Berman .......... Vice President None
Fred A. Fiandaca ........... President, Chief Executive Officer and Director None
Raritan Plaza One
Edison, NJ 08847
Stephen P. Fisher .......... Vice President None
Frank W. Giordano .......... Executive Vice President, General Counsel, None
Secretary and Director
Robert F. Gunia ............ Executive Vice President, Treasurer, Comptroller Vice President
and Director
Andrew J. Varley ........... Vice President None
Anita Whelan ............... Vice President and Assistant Secretary None
- -----------------
(1) The address of each person named is One Seaport Plaza, New York, NY
10292 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at
the offices of State Street Bank and Trust Company, One Heritage Drive,
North Quincy, Massachusetts 02171, The Prudential Investment Corporation,
Prudential Plaza, 751 Broad Street, Newark, New Jersey and Two Gateway
Center, Newark, New Jersey, the Registrant, One Seaport Plaza, New York,
New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9),
(10) and (11) and 31a-1(f) will be kept at 751 Broad Street, documents
required by Rules 31a-1(b)(4) and (11) and 31a- 1(d) at One Seaport Plaza
and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and
Prudential Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions "How the Fund Is
Managed-Manager" and "How the Fund Is Managed- Distributor" in the
Prospectus and the captions "Manager" and "Distributor" in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-
related service contract.
Item 32. Undertakings
The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York, on the 11th day of May, 1994.
PRUDENTIAL-BACHE UTILITY FUND, INC.
/s/ Lawrence C. McQuade
By:________________________________
(Lawrence C. McQuade, President)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Susan C. Cote
- --------------------------------
Susan C. Cote Treasurer May 11, 1994
/s/ Richard A. Redeker
- --------------------------------
Richard A. Redeker Director May 11, 1994
/s/ Robert R. Fortune
- --------------------------------
Robert R. Fortune Director May 11, 1994
/s/ Delayne D. Gold
- --------------------------------
Delayne D. Gold Director May 11, 1994
/s/ Harry A. Jacobs, Jr.
- --------------------------------
Harry A. Jacobs, Jr. Director May 11, 1994
/s/ Lawrence C. McQuade
- --------------------------------
Lawrence C. McQuade President and Director May 11, 1994
/s/ Thomas A. Owens, Jr.
- --------------------------------
Thomas A. Owens, Jr. Director May 11, 1994
/s/ Robert J.Schultz
- --------------------------------
Robert J.Schultz Director May 11, 1994
/s/ Merle T. Welshans
- --------------------------------
Merle T. Welshans Director May 11, 1994
<PAGE>
EXHIBIT INDEX
1. (a) Articles of Incorporation of the Registrant, as amended,
incorporated by reference to Exhibit 1 to the Registration Statement on
Form N-1A (File No. 2-72097) filed on May 1, 1981.
(b) Amendment to Articles of Incorporation, incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on November 3, 1989.
(c) Form of Amended and Restated Articles of Incorporation.*
2. (a) By-Laws of the Registrant, as amended, incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on March 1, 1988.
(b) Amendment to By-Laws, incorporated by reference to Exhibit 2(b) to
Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A
(File No. 2-72097) filed on December 28, 1989.
(c) Form of Amended and Restated By-Laws.*
4. (a) Specimen Stock Certificate issued by the Registrant, incorporated
by reference to Exhibit 4 to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 2-72097) filed on March 1,
1988.
(b) Specimen Stock Certificate for Class A shares, incorporated by
reference to Exhibit 4(b) to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A (File No. 2-72097) filed on April 30,
1990.
(c) Instruments defining rights of shareholders.
5. (a) Amended and Restated Management Agreement between the Registrant
and Prudential Mutual Fund Management, Inc., incorporated by reference to
Exhibit 5(a) to Post-Effective Amendment No. 14 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on April 30, 1990.
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation, incorporated by reference to
Exhibit 5(b) to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on March 1, 1988.
(c) Amendment to Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc., incorporated by reference to
Exhibit 5(c) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on November 3, 1989.
(d) Form of Amended Management Agreement.*
6. (a)(i) Underwriting Agreement, incorporated by reference to Exhibit
6(a)(i) to the Registration Statement on Form N-1A (File No. 2-72097)
filed on May 1, 1981.
(ii) Selected Dealers Agreement (Initial Offering), incorporated by
reference to Exhibit 6(a)(ii) to the Registration Statement on Form N-1A
(File No. 2-72097) filed on May 1, 1981.
(b)(i) Distribution Agreement, as amended, between the Registrant and
Prudential-Bache Securities Inc, incorporated by reference to Exhibit
6(b)(i) to the Registration Statement on Form N-1A (File No. 2-72097)
filed on May 1, 1981.
(ii) Selected Dealers Agreement (Continuous Offering), incorporated by
reference to Exhibit 6(b)(ii) to the Registration Statement on Form N-1A
(File No. 2-72097) filed on May 1, 1981.
(c) Amended and restated Distribution Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc. for Class A shares.*
(d) Amended and restated Distribution Agreement between the Registrant and
Prudential Securities Inc. for Class B shares.*
(e) Form of Distribution Agreement for Class A shares.*
(f) Form of Distribution Agreement for Class B shares.*
(g) Form of Distribution Agreement for Class C shares.*
8. (a) Custodian Agreement between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit 8 to the
Registration Statement on Form N-1A (File No. 2-72097) filed on May 1,
1981.
(b) Joint Custody Agreement between the Registrant and State Street Bank &
Trust, incorporated by reference to Exhibit 8(b) to Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A (File No. 2-
72097) filed on April 30, 1991.
<PAGE>
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A (File No. 2-72097) filed on March 1, 1988.
10. Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit
10 to the Registration Statement on Form N-1A (File No. 2-72097) filed on
May 1, 1981.
11. Consent of Independent Accountants.*
13. Purchase Agreement, incorporated by reference to Exhibit 13 to the
Registration Statement on Form N-1A (File No. 2-72097) filed on May 1,
1981.
15. (a) Amended and restated Distribution and Service Plan for Class A
shares.*
(b) Amended and restated Distribution and Service Plan for Class B
shares.*
(c) Form of Distribution and Service Plan for Class A shares.*
(d) Form of Distribution and Service Plan for Class B shares.*
(e) Form of Distribution and Service Plan for Class C shares.*
16. (a) Calculation of Performance Information for Class B shares,
incorporated by reference to Exhibit 16 to Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A (File No. 2-72097) filed on
March 1, 1988.
(b) Schedule of Computation of Performance Quotations relating to Average
Annual Total Return for Class A shares, incorporated by reference to
Exhibit 16(b) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 2-72097) filed on April 30, 1991.
(c) Schedule of Computation of Performance Quotations relating to
Aggregate Total Return for Class A and Class B shares, incorporated by
reference to Exhibit 16(c) to the Post-Effective Amendment No. 17 to the
Registration Statement on form N-1A (File No. 2-72097) on February 25,
1993.
Other Exhibits
Power of Attorney for:
Lawrence C. McQuade**
Robert R. Fortune**
Delayne D. Gold**
Harry A. Jacobs, Jr.**
Thomas A. Owens, Jr.**
Robert J. Schultz**
Merle T. Welshans**
*Filed herewith.
**Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-1A (File No. 2-72097) filed on November
3, 1989.
</TABLE>
99.1(c)
FORM OF
ARTICLES OF RESTATEMENT
of
ARTICLES OF INCORPORATION
of
PRUDENTIAL-BACHE UTILITY FUND, INC.
THIS IS TO CERTIFY that PRUDENTIAL-BACHE UTILITY FUND, INC., a
corporation organized and existing under and by virtue of the laws of the
State of Maryland, desires to restate its charter as currently in effect to
read in its entirety as follows:
ARTICLE I
I, the incorporator, James M. Bartos, whose post office address is 125
Broad Street, New York, New York 10004, being at least eighteen years of
age, am, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, forming a corporation.
ARTICLE II
The name of the corporation (hereinafter called the "Corporation") is
Prudential-Bache Utility Fund, Inc.
ARTICLE III
Purposes
The purpose for which the Corporation is formed is to act as an
open-end investment company of the management type registered as such with
the Securities and Exchange Commission pursuant to the Investment Company
Act of 1940 and to exercise and generally to enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by
1
<PAGE>
the General Laws of the State of Maryland now or hereafter in force.
ARTICLE IV
Address in Maryland
The post office address of the place at which the principal office of
the Corporation in the State of Maryland is located is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of
Maryland.
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
2
<PAGE>
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 be subject to a contingent
deferred sales charge and a Rule 12b-1 distribution fee
as determined by the Board of Directors from time to
time. All shares of each particular class shall
represent an equal proportionate interest in that class,
and each share of any particular class shall be equal to
each other share of that class.
(b) Each share of the Class B Common Stock of the
Corporation shall be converted automatically, and without
any action or choice on the part of the holder thereof,
into shares (including fractions thereof) of the Class A
Common Stock of the Corporation (computed in the manner
hereinafter described), at the applicable net asset value
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 acquired 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
3
<PAGE>
Directors and disclosed in the Corporation's then current
prospectus for such Class A and Class B Common Stock.
(c) The number of shares of the Class A Common
Stock of the Corporation into which a share of the
Class B Common Stock is converted pursuant to
Paragraph (1)(b) hereof shall equal the number (including
for this purpose fractions of a share) obtained by
dividing the net asset value per share of the Class B
Common Stock for purposes of sales and redemptions
thereof at the time of the calculation of the net asset
value on the Conversion Date by the net asset value per
share of the Class A Common Stock for purposes of sales
and redemptions thereof at the time of the calculation of
the net asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the
Class B Common Stock of the Corporation converted into
shares of the Class A Common Stock will cease to accrue
dividends and will no longer be outstanding and the
rights of the holders thereof will cease (except the
right to receive declared but unpaid dividends to the
Conversion Date).
(e) The Board of Directors shall have full power
and authority to adopt such other terms and conditions
concerning the conversion of shares of the Class B Common
Stock to shares of the Class A Common Stock as they deem
appropriate; provided such terms and conditions are not
inconsistent with the terms contained in this Section 1
and subject to any restrictions or requirements under the
Investment Company Act of 1940 and the rules, regulations
and interpretations thereof promulgated or issued by the
Securities and Exchange Commission, any conditions or
limitations contained in an order issued by the
Securities and Exchange Commission applicable to the
4
<PAGE>
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.
Section 2. The Board of Directors may, in its discretion, classify and
reclassify any unissued shares of the capital stock of the Corporation into
one or more additional or other classes or series by setting or changing in
any one or more respects the designations, conversion or other rights,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares and pursuant to such classification
or reclassification to increase or decrease the number of authorized shares
of any existing class or series. If designated by the Board of Directors,
particular classes or series of capital stock may relate to separate
portfolios of investments.
Section 3. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, the holders of each class and series of capital
stock of the Corporation shall be entitled to dividends and distributions
in such amounts and at such times as may be determined by the Board of
Directors, and the dividends and distributions paid with respect to the
various classes or series of capital stock may vary among such classes or
series. Expenses related to the distribution of, and other identified
expenses that should properly be allocated to, the shares of a particular
class or series of capital stock may be charged to and borne solely by such
class or series and the bearing of expenses solely by a class or series may
be appropriately reflected (in a manner determined by the Board of
Directors) and cause differences in the net asset value attributable to,
and the dividend, redemption and liquidation rights of, the shares of each
such class or series of capital stock.
5
<PAGE>
Section 4. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, on each matter submitted to a vote of
stockholders, each holder of a share of capital stock of the Corporation
shall be entitled to one vote for each share standing in such holder's name
on the books of the Corporation, irrespective of the class or series
thereof, and all shares of all classes and series shall vote together as a
single class; provided, however, that (a) as to any matter with respect to
which a separate vote of any class or series is required by the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and in
effect from time to time, or any rules, regulations or orders issued
thereunder, or by the Maryland General Corporation Law, such requirement as
to a separate vote by that class or series shall apply in lieu of a general
vote of all classes and series as described above; (b) in the event that
the separate vote requirements referred to in (a) above apply with respect
to one or more classes or series, then subject to paragraph (c) below, the
shares of all other classes and series not entitled to a separate vote
shall vote together as a single class; and (c) as to any matter which in
the judgment of the Board of Directors (which shall be conclusive) does not
affect the interest of a particular class or series, such class or series
shall not be entitled to any vote and only the holders of shares of the one
or more affected classes and series shall be entitled to vote.
Section 5. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, holders of
shares of capital stock of the Corporation shall be entitled, after payment
or provision for payment of the debts and other
6
<PAGE>
liabilities of the Corporation (as such liabilities may affect one or more
of the classes of shares of capital stock of the Corporation) to share
ratably in the remaining net assets of the Corporation; provided, however,
that in the event the capital stock of the Corporation shall be classified
or reclassified into series, holders of any shares of capital stock within
such series shall be entitled to share ratably out of assets belonging to
such series pursuant to the provisions of section 7(c) of this Article V.
Section 6. Each share of any class of the capital
stock of the Corporation, and in the event the capital stock
of the Corporation shall be classified or reclassified into
series, each share of any class of Capital Stock of the
Corporation within such series shall be subject to the
following provisions:
(a) The net asset value of each outstanding share
of capital stock of the Corporation (or of a class or
series, in the event the capital stock of the Corporation
shall be so classified or reclassified), subject to
subsection (b) of this Section 6, shall be the quotient
obtained by dividing the value of the net assets of the
Corporation (or the net assets of the Corporation
attributable or belonging to that class or series as
designated by the Board of Directors pursuant to Articles
Supplementary) by the total number of outstanding shares
of capital stock of the Corporation (or of such class or
series, in the event the capital stock of the Corporation
shall be classified or reclassified into series).
Subject to subsection (b) of this Section 6, the value of
the net assets of the Corporation (or of such class or
series, in the event the capital stock of the Corporation
shall be classified or reclassified into series) shall be
determined pursuant to the procedures or methods (which
procedures or methods, in the event the capital stock of
7
<PAGE>
the Corporation shall be classified or reclassified into
series, may differ from class to class or from series to
series) prescribed or approved by the Board of Directors
in its discretion, and shall be determined at the time or
times (which time or times may, in the event the capital
stock of the Corporation shall be classified into classes
or series, differ from series to series) prescribed or
approved by the Board of Directors in its discretion. In
addition, subject to subsection (b) of this Section 6,
the Board of Directors, in its discretion, may suspend
the daily determination of net asset value of any share
of any series or class of capital stock of the
Corporation.
(b) The net asset value of each share of the
capital stock of the Corporation or any class or series
thereof shall be determined in accordance with any
applicable provision of the Investment Company Act, any
applicable rule, regulation or order of the Securities
and Exchange Commission thereunder, and any applicable
rule or regulation made or adopted by any securities
association registered under the Securities Exchange Act
of 1934.
(c) All shares now or hereafter authorized shall be
subject to redemption and redeemable at the option of the
stockholder pursuant to the applicable provisions of the
Investment Company Act and laws of the State of Maryland,
including any applicable rules and regulations
thereunder. Each holder of a share of any class or
series, upon request to the Corporation (if such holder's
shares are certificated, such request being accompanied
by surrender of the appropriate stock certificate or
certificates in proper form for transfer), shall be
entitled to require the Corporation to redeem all or any
part of such shares standing in the name of such holder
8
<PAGE>
on the books of the Corporation (or as represented by
share certificates surrendered to the Corporation by such
redeeming holder) at a redemption price per share
determined in accordance with subsection (a) of this
Section 6.
(d) Notwithstanding subsection (c) of this Section
6, the Board of Directors of the Corporation may suspend
the right of the holders of shares of any or all classes
or series of capital stock to require the Corporation to
redeem such shares or may suspend any purchase of such
shares:
(i) for any period during (A) during which
the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or (B)
during which trading on the New York Stock Exchange
is restricted;
(ii) for any period during which an emergency,
as defined by the rules of the Securities and
Exchange Commission or any successor thereto,
exists as a result of which (A) disposal by the
Corporation of securities owned by it and belonging
to the affected series of capital stock (or the
Corporation, if the shares of capital stock of the
Corporation have not been classified or
reclassified into series) is not reasonably
practicable, or (B) it is not reasonably
practicable for the Corporation fairly to determine
the value of the net assets of the affected series
of capital stock; or
(iii) for such other periods as the Securities
and Exchange Commission or any successor thereto
may by order permit for the protection of the
9
<PAGE>
holders of shares of capital stock of the
Corporation.
(e) All shares of the capital stock of the
Corporation now or hereafter authorized shall be subject
to redemption and redeemable at the option of the
Corporation. The Board of Directors may by resolution
from time to time authorize the Corporation to require
the redemption of all or any part of the outstanding
shares of any class or series upon the sending of written
notice thereof to each holder whose shares are to be
redeemed and upon such terms and conditions as the Board
of Directors, in its discretion, shall deem advisable,
out of funds legally available therefor, at the net asset
value per share of that class or series determined in
accordance with subsections (a) and (b) of this Section
6 and take all other steps deemed necessary or advisable
in connection therewith.
(f) The Board of Directors may by resolution from
time to time authorize the purchase by the Corporation,
either directly or through an agent, of shares of any
class or series of the capital stock of the Corporation
upon such terms and conditions and for such consideration
as the Board of Directors, in its discretion, shall deem
advisable out of funds legally available therefor at
prices per share not in excess of the net asset value per
share of that class or series determined in accordance
with subsections (a) and (b) of this Section 6 and to
take all other steps deemed necessary or advisable in
connection therewith.
(g) Except as otherwise permitted by the Investment
Company Act of 1940, payment of the redemption price of
shares of any class or series of the capital stock of the
Corporation surrendered to the Corporation for redemption
10
<PAGE>
pursuant to the provisions of subsection (c) of this
Section 6 or for purchase by the Corporation pursuant to
the provisions of subsections (e) or (f) of this Section
6 shall be made by the Corporation within seven days
after surrender of such shares to the Corporation for
such purpose. Any such payment may be made in whole or in
part in portfolio securities or in cash, as the Board of
Directors, in its discretion, shall deem advisable, and
no stockholder shall have the right, other than as
determined by the Board of Directors, to have his or her
shares redeemed in portfolio securities.
(h) In the absence of any specification as to the
purposes for which shares are redeemed or repurchased by
the Corporation, all shares so redeemed or repurchased
shall be deemed to be acquired for retirement in the
sense contemplated by the laws of the State of Maryland.
Shares of any class or series retired by repurchase or
redemption shall thereafter have the status of authorized
but unissued shares of such class or series.
Section 7. In the event the Directors shall authorize the
classification or reclassification of shares into classes or series, the
Board of Directors may (but shall not be obligated to) provide that each
class or series shall have the following powers, preferences and voting or
other special rights, and the qualifications, restrictions and limitations
thereof shall be as follows:
(a) All consideration received by the Corporation
for the issue or sale of shares of capital stock of each
series, together with all income, earnings, profits, and
proceeds received thereon, including any proceeds derived
from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall
11
<PAGE>
irrevocably belong to the series with respect to which
such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights
of creditors, and shall be so handled upon the books of
account of the Corporation. Such assets, payments and
funds, including any proceeds derived from the sale,
exchange or liquidation thereof and any assets derived
from any reinvestment of such proceeds in whatever form
the same may be, are herein referred to as "assets
belonging to" such series.
(b) The Board of Directors may from time to time
declare and pay dividends or distributions, in additional
shares of capital stock of such series or in cash, on any
or all series of capital stock, the amount of such
dividends and the means of payment being wholly in the
discretion of the Board of Directors.
(i) Dividends or distributions on shares of
any series shall be paid only out of earned surplus
or other lawfully available assets belonging to
such series.
(ii) Inasmuch as one goal of the Corporation
is to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute
thereto, and Regulations promulgated thereunder,
and inasmuch as the computation of net income and
gains for federal income tax purposes may vary from
the computation thereof on the books of the
Corporation, the Board of Directors shall have the
power, in its discretion, to distribute in any
fiscal year as dividends, including dividends
designated in whole or in part as capital gains
distributions, amounts sufficient, in the opinion
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<PAGE>
of the Board of Directors, to enable the
Corporation to qualify as a regulated investment
company and to avoid liability for the Corporation
for federal income tax in respect of that year. In
furtherance, and not in limitation of the
foregoing, in the event that a series has a net
capital loss for a fiscal year, and to the extent
that the net capital loss offsets net capital gains
from such series, the amount to be deemed available
for distribution to that series with the net
capital gain may be reduced by the amount offset.
(c) In the event of the liquidation or dissolution
of the Corporation, holders of shares of capital stock of
each series shall be entitled to receive, as a series,
out of the assets of the Corporation available for
distribution to such holders, but other than general
assets not belonging to any particular series, the assets
belonging to such series; and the assets so distributable
to the holders of shares of capital stock of any series
shall be distributed, subject to the provisions of
subsection (d) of this Section 7, among such stockholders
in proportion to the number of shares of such series held
by them and recorded on the books of the Corporation. In
the event that there are any general assets not belonging
to any particular series and available for distribution,
such distribution shall be made to the holders of all
series in proportion to the net asset value of the
respective series determined in accordance with the
charter of the Corporation.
(d) The assets belonging to any series shall be
charged with the liabilities in respect to such series,
and shall also be charged with its share of the general
liabilities of the Corporation, in proportion to the
asset value of the respective series determined in
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<PAGE>
accordance with the charter of the Corporation. The
determination of the Board of Directors shall be
conclusive as to the amount of liabilities, including
accrued expenses and reserves, as to the allocation of
the same as to a given series, and as to whether the same
or general assets of the Corporation are allocable to one
or more classes.
Section 8. Any fractional shares shall carry proportionately all the
rights of a whole share, excepting any right to receive a certificate
evidencing such fractional share, but including, without limitation, the
right to vote and the right to receive dividends.
Section 9. No holder of shares of Common Stock of the Corporation
shall, as such holder, have any pre-emptive right to purchase or subscribe
for any shares of the Common Stock of the Corporation of any class or
series which it may issue or sell (whether out of the number of shares
authorized by the Articles of Incorporation, or out of any shares of the
Common Stock of the corporation acquired by it after the issue thereof, or
otherwise).
Section 10. All persons who shall acquire any shares of capital stock
of the Corporation shall acquire the same subject to the provisions of the
charter and By-Laws of the Corporation. All shares of Common Stock of the
Corporation issued on or before January 17, 1990 shall without further act
of the Board of Directors or the holders of such shares be deemed to be
shares of Class B Common Stock.
Section 11. The Class A Common Stock of the Corporation shall
represent the same interest in the Corporation and have identical voting,
dividend, liquidation and other rights as the Class B Common Stock, except
that:
(a) Expenses related to the distribution of each
class of shares shall be borne solely by such class;
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<PAGE>
(b) 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;
(c) 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
prior to issuance of such stock; and
(d) 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 prior to issuance of such stock.
ARTICLE VI
Directors
The Corporation has nine directors, and the names of those currently
in office, who shall act as such until their successors are duly elected
and qualify, are as follows:
Michael J. Downey
Robert R. Fortune
Delayne D. Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
William C. Norby
Thomas A. Owens, Jr.
Robert J. Schultz
Merle T. Welshans
However, the By-Laws of the Corporation may fix the number of
directors at a number other than nine and may authorize the Board of
Directors, by the vote of a majority of the entire Board of Directors, to
increase or decrease the number of directors within a limit specified in
the By-Laws, provided that in no case shall the number of directors be less
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than three, and to fill the vacancies created by any such increase in the
number of directors. Unless otherwise provided by the By-Laws of the
Corporation, the directors of the Corporation need not be stockholders.
The By-Laws of the Corporation may divide the
Directors of the Corporation into classes and prescribe the
tenure of office of the several classes; but no class shall be
elected for a period shorter than that from the time of the
election of such class until the next annual meeting and
thereafter for a period shorter than the interval between
annual meetings or for a longer period than five years, and
the term of office of at least one class shall expire each
year.
ARTICLE VII
Miscellaneous
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for
creating, defining, limiting and regulating the powers of the Corporation,
the directors and the stockholders.
Section 1. The Board of Directors shall have the management and
control of the property, business and affairs of the Corporation and is
hereby vested with all the powers possessed by the Corporation itself so
far as is not inconsistent with law or these Articles of Incorporation. In
furtherance and without limitation of the foregoing provisions, it is
expressly declared that, subject to these
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Articles of Incorporation, the Board of Directors shall have power:
(a) To make, alter, amend or repeal from time to
time the By-Laws of the Corporation except as such power
may otherwise be limited in the By-Laws.
(b) To issue shares of any class or series of the
capital stock of the Corporation.
(c) To authorize the purchase of shares of any
class or series in the open market or otherwise, at
prices not in excess of their net asset value for shares
of that class, series or class within such series
determined in accordance with subsections (a) and (b) of
Section 6 of Article V hereof, provided that the
Corporation has assets legally available for such
purpose, and to pay for such shares in cash, securities
or other assets then held or owned by the Corporation.
(d) To declare and pay dividends and distributions
from funds legally available therefor on shares of such
class or series, in such amounts, if any, and in such
manner (including declaration by means of a formula or
other similar method of determination whether or not the
amount of the dividend or distribution so declared can be
calculated at the time of such declaration) and to the
holders of record as of such date, as the Board of
Directors may determine.
(e) To take any and all action necessary or
appropriate to maintain a constant net asset value per
share for shares of any class, series or class within
such series.
Section 2. Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles applied by or
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pursuant to the direction of the Board of Directors or as otherwise
required or permitted by the Securities and Exchange Commission, shall be
final and conclusive, and shall be binding upon the Corporation and all
holders of shares, past, present and future, of each class or series, and
shares are issued and sold on the condition and undertaking, evidenced by
acceptance of certificates for such shares by, or confirmation of such
shares being held for the account of, any stockholder, that any and all
such determinations shall be binding as aforesaid.
Nothing in this Section 2 shall be construed to protect any director
or officer of this Corporation against liability to the Corporation or its
stockholders to which such director or officer would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Section 3. The directors of the Corporation may receive compensation
for their services, subject, however, to such limitations with respect
thereto as may be determined from time to time by the holders of shares of
capital stock of the Corporation.
Section 4. Except as required by law, the holders of shares of capital
stock of the Corporation shall have only such right to inspect the records,
documents, accounts and books of the Corporation as may be granted by the
Board of Directors of the Corporation.
Section 5. Any vote of the holders of shares of capital stock of the
Corporation authorizing liquidation of the Corporation or proceedings for
its dissolution may authorize the Board of Directors to determine, as
provided herein, or if provision is not made herein, in accordance with
generally accepted accounting principles, which assets are the
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assets belonging to the Corporation or any series thereof available for
distribution to the holders of the Corporation or any series thereof
(pursuant to the provisions of Section 7 of Article V hereof) and may
divide, or authorize the Board of Directors to divide, such assets among
the stockholders of the shares of capital stock of the Corporation or any
series thereof in such manner as to ensure that each such holder receives
an amount from the proceeds of such liquidation or dissolution that such
holder is entitled to, as determined pursuant to the provisions of Sections
3 and 7 of Article V hereof.
ARTICLE VIII
Definitions
Section 1. As used in these Articles of
Incorporation and in the By-Laws of the Corporation, the
following terms shall have the meanings indicated:
"Gross Assets" shall mean the total value of the
assets of the Corporation determined as provided in
Section 3 below.
"Person" shall mean a natural person, corporation,
joint stock company, firm association, partnership,
trust, syndicate, combination, organization, government
or agency or subdivision thereof.
"Securities" shall mean any stock, shares, bonds,
debentures, notes, mortgages or other obligations, and
any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights
or interests therein, or in any property or assets created
or issued by any Person.
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Section 2. Net asset value shall be determined by dividing:
(a) The total value of the assets of the
Corporation determined as provided in Section 3 below
less, to the extent determined by or pursuant to the
direction of the Board of Directors in accordance with
generally accepted accounting principles, all debts,
obligations and liabilities of the Corporation (which
debts, obligations and liabilities shall include, without
limitation of the generality of the foregoing, any and
all debts, obligations, liabilities or claims, of any and
every kind and nature, fixed, accrued or unmatured,
including the estimated accrued expense of investment
advisory and administrative services, and any reserves or
charges for any or all of the foregoing, whether for
taxes, expenses, contingencies, or otherwise, and the
price of common stock redeemed but not paid for) but
excluding the Corporation's liability upon its shares and
its surplus, by
(b) The total number of shares of the Corporation
outstanding (shares sold by the Corporation whether or
not paid for being treated as outstanding and shares
purchased or redeemed by the Corporation whether or not
paid for and treasury shares being treated as not
outstanding).
Section 3. In determining for the purposes of these Articles of
Incorporation the total value of the assets of the Corporation at any time,
securities shall be taken at their market value or, in the absence of
readily available market quotations, at fair value, both as determined
pursuant to methods approved by the Board of Directors and in accordance
with applicable statutes and regulations, and all other assets at fair
value determined in such manner as may be approved
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from time to time by or pursuant to the direction of the Board of
Directors.
Section 4. Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the direction of the Board of
Directors, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its shares, past, present and future, and
shares of the Corporation are issued and sold on the condition and
understanding, evidenced by acceptance of certificates for such shares by,
or confirmation of such shares being held for the account of any
stockholder, that any and all such determinations shall be binding as
aforesaid.
Nothing in this Section 4 shall be construed to protect any director
or officer or the Corporation against any liability to the Corporation or
its stockholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
ARTICLE IX
Amendments
From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment
that changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the
statutes of the State of Maryland at the time in force, be lawfully
contained in articles of incorporation may be added or inserted, upon the
vote of the holders of a majority of the shares of common stock of the
Corporation at the time outstanding and entitled to vote, and all rights at
any time
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conferred upon the stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article IX.
------------
The foregoing Articles of Restatement of Articles of Incorporation of
the Corporation have been approved by a majority of the entire Board of
Directors and no stock entitled to be voted on the matter was outstanding
or subscribed for at the time of approval. The foregoing Articles of
Restatement do not increase the authorized stock of the Corporation. The
provisions set forth in these Articles of Restatement are all the
provisions of the charter of the Corporation currently in effect and such
charter is not amended by these Articles of Restatement.
-------------
IN WITNESS WHEREOF, PRUDENTIAL-BACHE UTILITY FUND, INC. has caused
these Articles of Restatement of Articles of Incorporation to be signed in
its name and on its behalf by its President and witnessed by its Secretary,
and the said officers of the Corporation further also acknowledged said
instrument to be the corporate act of the Corporation and stated under the
penalties of perjury that to the best of their knowledge, information and
belief the matters and facts
22
<PAGE>
therein set forth with respect to approval are true in all material
respects, all on , 1994.
PRUDENTIAL-BACHE UTILITY FUND, INC.
By:________________________________
President
WITNESS:
________________________
Secretary
(FW)125LAN04\68321.03
23
99.2(c)
PRUDENTIAL-BACHE UTILITY FUND, INC.
Form of Amended and Restated By-Laws
ARTICLE I
Stockholders
Section 1. Place of Meeting. All meetings of the stockholders
shall be held at the principal office of the Corporation in the State of
Maryland or at such other place within the United States as may from time
to time be designated by the Board of Directors and stated in the notice of
such meeting.
Section 2. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held in the month of September of
each year on such date and at such hour as may from time to time be
designated by the Board of Directors and stated in the notice of such
meeting, for the purpose of electing directors for the ensuing year and for
the transaction of such business as may properly be brought before the
meeting; provided however, that an annual meeting of stockholders is not
required to be held in any year in which the election of directors is not
required to be acted upon by stockholders pursuant to the Investment
Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of the stockholders for any purpose or purposes may
be called by the Chairman of the
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Board, the President or a majority of the Board of Directors, and shall be
called by the Secretary upon receipt of the request in writing signed by
stockholders holding not less than 25% of the common stock issued and
outstanding and entitle to vote thereat. Such request shall state the
purpose or purposes of the proposed meeting. The Secretary shall inform
such stockholders of the reasonably estimated costs of preparing and
mailing such notice of meetings and upon payment to the Corporation of such
costs, the Secretary shall give notice stating the purpose or purposes of
the meeting as required in this Article and by-law to all stockholders
entitled to notice of such meeting. No special meeting need be called upon
the request of the holders of shares entitled to cast less than a majority
of all votes entitled to be cast at such meeting to consider any matter
which is substantially the same as a matter voted upon at any special
meeting of stockholders held during the preceding twelve months.
Section 4. Notice of Meetings of Stockholders. Not less than
ten days' and not more than ninety days' written or printed notice of every
meeting of stockholders, stating the time and place thereof (and the
general nature of the business proposed to be transacted at any special or
extraordinary meeting), shall be given to each stockholder entitled to vote
thereat by leaving the same with him or at his residence or usual place of
business or by mailing it,
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<PAGE>
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation. If mailed, notice shall be deemed to be given
when deposited in the United States mail addressed to the stockholder as
aforesaid.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person or by
proxy or to any stockholder who, in writing executed and filed with the
records of the meeting, either before or after the holding thereof, waives
such notice.
Section 5. Record Dates. The Board of Directors may fix, in
advance, a date not exceeding ninety days preceding the date of any meeting
of stockholders, any dividend payment date or any date for the allotment of
rights, as a record date for the determination of the stockholders entitled
to notice of and to vote at such meeting or entitled to receive such
dividends or rights, as the case may be; and only stockholders of record on
such date shall be entitled to notice of and to vote at such meeting or to
receive such dividends or rights, as the case may be. In the case of a
meeting of stockholders, such date shall not be less than ten days prior to
the date fixed for such meeting.
Section 6. Quorum, Adjournment of Meetings. The presence in
person or by proxy of the holders of record of a
3
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majority of the shares of the common stock of the Corporation issued and
outstanding and entitled to vote thereat shall constitute a quorum at all
meetings of the stockholders except as otherwise provided in the Articles
of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the holders of a majority
of the stock present in person or by proxy shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until the requisite number of stockholders entitled to vote at
such meeting shall be present. At such adjourned meeting at which the
requisite amount of stock entitled to vote thereat shall be represented any
business may be transacted which might have been transacted at the meeting
as originally notified.
Section 7. Voting and Inspectors. At all meetings,
stockholders of record entitled to vote thereat shall have one vote for
each share of common stock standing in his name on the books of the
Corporation (and such stockholders of record holding fractional shares, if
any, shall have proportionate voting rights) on the date for the
determination of stockholders entitled to vote at such meeting, either in
person or by proxy appointed by instrument in writing subscribed by such
stockholder or his duly authorized attorney.
4
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All elections shall be had and all questions decided by a
majority of the votes cast at a duly constituted meeting, except as
otherwise provided by statute or by the Articles of Incorporation or by
these By-Laws.
At any election of Directors, the Chairman of the meeting may,
and upon the request of the holders of ten percent (10%) of the stock
entitled to vote at such election shall, appoint two inspectors of election
who shall first subscribe an oath or affirmation to execute faithfully the
duties of inspectors at such election with strict impartiality and
according to the best of their ability, and shall after the election make a
certificate of the result of the vote taken. No candidate for the office
of Director shall be appointed such Inspector.
Section 8. Conduct of Stockholders' Meetings. The meetings of
the stockholders shall be presided over by the Chairman of the Board, or if
he is not present, by the President, or if he is not present, by a Vice-
President, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor the Assistant Secretary is
present, then the meeting shall elect its Secretary.
Section 9. Concerning Validity of Proxies, Ballots, etc. At
every meeting of the stockholders, all
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proxies shall be received and taken in charge of and all ballots shall be
received and canvassed by the Secretary of the meeting, who shall decide
all questions concerning the qualification of voters, the validity of the
proxies and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed by the Chairman of the meeting, in which
event such inspectors of election shall decide all such questions.
ARTICLE II
Board of Directors
Section 1. Number and Tenure of Office. The business and
affairs of the Corporation shall be conducted and managed by a Board of
Directors of not less than three nor more than nine Directors, as may be
determined from time to time by vote of a majority of the Directors then in
office. Directors need not be stockholders.
Section 2. Vacancies. In case of any vacancy in the Board of
Directors through death, resignation or other cause, other than an increase
in the number of Directors, a majority of the remaining Directors, although
a majority is less than a quorum, by an affirmative vote, may elect a
successor to hold office until the next annual meeting of stockholders or
until his successor is chosen and qualifies.
Section 3. Increase or Decrease in the Number of Directors.
The Board of Directors, by the vote of a majority of the entire Board, may
increase the number of
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<PAGE>
Directors and may elect Directors to fill the vacancies created by any such
increase in the number of Directors until the next annual meeting or until
their successors are duly chosen and qualified. The Board of Directors, by
the vote of a majority of the entire Board, may likewise decrease the
number of Directors to a number not less than three.
Section 4. Place of Meeting. The Directors may hold their
meetings, have one or more offices, and keep the books of the Corporation,
outside the State of Maryland, at any office or offices of the Corporation
or at any other place as they may from time to time by resolution
determine, or in the case of meetings, as they may from time to time by
resolution determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and on such notice as the Directors
may from time to time determine.
The annual meeting of the Board of Directors shall be held as
soon as practicable after the annual meeting of the stockholders for the
election of Directors.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be held from time to time upon call of the Chairman of the
Board, the President, the Secretary or two or more of the Directors, by
oral or
7
<PAGE>
telegraphic or written notice duly served on or sent or mailed to each
Director not less than one day before such meeting. No notice need be
given to any Director who attends in person or to any Director who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Such notice or waiver of
notice need not state the purpose or purposes of such meeting.
Section 7. Quorum. One-third of the Directors then in office
shall constitute a quorum for the transaction of business, provided that a
quorum shall in no case be less than two Directors. If at any meeting of
the Board there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time until a quorum shall be
obtained. The act of the majority of the Directors present at any meeting
at which there is a quorum shall be the act of the Directors, except as may
be otherwise specifically provided by statute or by the Articles of
Incorporation or by these By-Laws.
Section 8. Executive Committee. The Board of Directors may,
by the affirmative vote of a majority of the entire Board, appoint from the
Directors an Executive Committee to consist of such number of Directors
(not less than three) as the Board may from time to time determine. The
Chairman of the Committee shall be elected by the Board of Directors. The
Board of Directors by such affirmative
8
<PAGE>
vote shall have power at any time to change the members of such Committee
and may fill vacancies in the Committee by election from the Directors.
When the Board of Directors is not in session, to the extent permitted by
law the Executive Committee shall have and may exercise any or all of the
powers of the Board of Directors in the management of the business and
affairs of the Corporation. The Executive Committee may fix its own rules
of procedure, and may meet when and as provided by such rules or by
resolution of the Board of Directors, but in every case the presence of a
majority shall be necessary to constitute a quorum. During the absence of
a member of the Executive Committee, the remaining members may appoint a
member of the Board of Directors to act in his place.
Section 9. Other Committees. The Board of Directors, by the
affirmative vote of a majority of the whole Board, may appoint from the
Directors other committees which shall in each case consist of such number
of Directors (not less than two) and shall have and may exercise such
powers as the Board may determine in the resolution appointing them. A
majority of all the members of any such committee may determine its action
and fix the time and place of its meetings, unless the Board of Directors
shall otherwise provide. The Board of Directors shall have power at any
time to change the members and powers of any such
9
<PAGE>
committee, to fill vacancies and to discharge any such committee.
Section 10. Telephone Meetings. Members of the Board of
Directors of a committee of the Board of Directors may participate in a
meeting by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other
at the same time. Participation in a meeting by these means constitutes
presence in person at the meeting.
Section 11. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board or of such committee, as
the case may be, and such written consent is filed with the minutes of the
proceedings of the Board or committee.
Section 12. Compensation of Directors. No Director shall
receive any stated salary or fees from the Corporation for his services as
such if such Director is, otherwise than by reason of being such Director,
an interested person (as such term is defined by the Investment Company Act
of 1940) of the Corporation or of its investment adviser, administrator or
principal underwriter. Except as provided in the preceding sentence,
Directors shall be entitled to receive such compensation from the
Corporation
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for their services as may from time to time be voted by the Board of
Directors.
Section 13. Nominating Committee. The Board of Directors may
by the affirmative vote of a majority of the entire Board appoint from its
members a Nominating Committee composed of two or more directors who are
not "interested persons" (as defined in the Investment Company Act of 1940)
of the Corporation, as the Board may from time to time determine. The
Nominating Committee shall be empowered to elect its own chairman who may
call, or direct the Secretary of the Corporation to call meetings in
accordance with the notice provisions of these By-Laws otherwise applicable
to meetings of the Board of Directors. The Nominating Committee shall
recommend to the Board a slate of persons who are not "interested persons"
(as defined in the Investment Company Act of 1940) of the Corporation,
which may include members of the Nominating Committee, to be nominated for
election as directors by the stockholders at each annual meeting of
stockholders and to fill any vacancy occurring for any reason among the
directors who are not such interested persons.
ARTICLE III
Officers
Section 1. Executive Officers. The executive officers of the
Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the annual
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meeting of the stockholders. These may include a Chairman of the Board of
Directors (who shall be a Director) and shall include a President (who
shall be a Director), one or more Vice-Presidents (the number thereof to be
determined by the Board of Directors), a Secretary and a Treasurer. The
Board of Directors or the Executive Committee may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers and other officers,
agents and employees, who shall have such authority and perform such duties
as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two
officers, except those of President and Vice-President, may be held by the
same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity, if such instrument is required by law
or these By-Laws to be executed, acknowledged or verified by two or more
officers.
Section 2. Term of Office. The term of office of all officers
shall be one year and until their respective successors are chosen and
qualified. Any officer may be removed from office at any time with or
without cause by the vote of a majority of the whole Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation
shall have such powers and duties as generally pertain to their respective
offices, as well as
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such powers and duties as may from time to time be conferred by the Board
of Directors or the Executive Committee.
ARTICLE IV
Capital Stock
Section 1. Certificates for Shares. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
shares of stock of the Corporation owned by him in such form as the Board
may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation
shall be transferable on the books of the Corporation by the holder thereof
in person or by his duly authorized attorney or legal representative, upon
surrender and cancellation of certificates, if any, for the same number of
shares, duly endorsed or accompanied by proper instruments of assignment
and transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require; in the case of shares not
represented by certificates, the same or similar requirements may be
imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the
Corporation, containing the name and address of the stockholders and the
number of shares held by them respectively, shall be kept at the principal
office of the Corporation or, if the Corporation employs a Transfer Agent,
at the office of the Transfer Agent of the Corporation.
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Section 4. Lost, Stolen or Destroyed Certificates. The Board
of Directors or the Executive Committee may determine the conditions upon
which a certificate of stock of the Corporation of any class may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in its discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient
surety, to the Corporation and each Transfer Agent, if any, and to
indemnify it and each Transfer Agent against any and all loss or claims
which may arise by reason of the issue of a new certificate in the place of
the one so lost, stolen or destroyed.
ARTICLE V
Corporate Seal
The Board of Directors may provide for a suitable corporate
seal, in such form and bearing such inscriptions as it may determine.
ARTICLE VI
Fiscal Year
The fiscal year of the Corporation shall begin on the first day
of January and shall end on the last day of December in each year.
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ARTICLE VII
Indemnification
The Corporation shall indemnify directors, officers, employees
and agents of the Corporation against judgments, fines, settlements and
expenses to the fullest extent authorized, and in the manner permitted, by
applicable federal and state law.
ARTICLE VIII
Custodian
Section 1. The Corporation shall have as custodian or
custodians one or more trust companies or banks of good standing, each
having a capital, surplus and undivided profits aggregating not less than
fifty million dollars ($50,000,000), and, to the extent required by the
Investment Company Act of 1940, the funds and securities held by the
Corporation shall be kept in the custody of one or more such custodians,
provided such custodian or custodians can be found ready and willing to
act, and further provided that the Corporation may use as subcustodians,
for the purpose of holding any foreign securities and related funds of the
Corporation such foreign banks as the Board of Directors may approve and as
shall be permitted by law.
Section 2. The Corporation shall upon the resignation or
inability to serve of its custodian or upon change of the custodian:
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(i) in case of such resignation or inability to serve,
use its best efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the
Corporation be delivered directly to the successor custodian;
and
(iii) in the event that no successor custodian can be
found, submit to the stockholders before permitting delivery of
the cash and securities owned by the Corporation otherwise than
to a successor custodian, the question whether or not this
Corporation shall be liquidated or shall function without a
custodian.
ARTICLE IX
Amendment of By-Laws
The By-Laws of the Corporation may be altered, amended, added
to or repealed by the stockholders or by majority vote of the entire Board
of Directors; but any such alteration, amendment, addition or repeal of the
By-Laws by action of the Board of Directors may be altered or repealed by
stockholders.
16
99.5(d)
PRUDENTIAL-BACHE UTILITY FUND, INC.
FORM OF
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
Agreement, made this 2nd day of May, 1988 and amended on this ____ day
of ________________, 1994 between Prudential-Bache Money Market Exchange
Fund, Inc., a Maryland corporation (the "Fund"), and Prudential Mutual Fund
Management, Inc., a Delaware corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end
management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain the Manager to
render or contract to obtain as hereinafter provided
investment advisory services to the Fund and the Fund also
desires to avail itself of the facilities available to the
Manager with respect to the administration of its day to day
corporate affairs, and the Manager is willing to render such
investment advisory and administrative services;
NOW, THEREFORE, the parties agree as follows:
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1. The Fund hereby appoints the Manager to act as manager of the Fund
and administrator of its corporate affairs for the period and on the terms
set forth in this Agreement. The Manager accepts such appointment and
agrees to render the services herein described, for the compensation herein
provided. The Manager will enter into an agreement, dated the date hereof,
with The Prudential Investment Corporation ("PIC") pursuant to which PIC
shall furnish to the Fund the investment advisory services specified
therein in connection with the management of the Fund. Such agreement in
the form attached as Exhibit A is hereinafter referred to as the
"Subadvisory Agreement." The Manager will continue to have responsibility
for all investment advisory services furnished pursuant to the Subadvisory
Agreement.
2. Subject to the supervision of the Board of Directors of the Fund,
the Manager shall administer the Fund's corporate affairs and, in
connection therewith, shall furnish the Fund with office facilities and
with clerical, bookkeeping and recordkeeping services at such office
facilities and, subject to Section 1 hereof and the Subadvisory Agreement,
the Manager shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition thereof, in accordance with the Fund's investment objectives,
policies and restrictions as stated
2
<PAGE>
in the Prospectus (hereinafter defined)
and subject to the following understandings:
(a) The Manager shall provide supervision of the
Fund's investments and determine from time to time what
investments or securities will be purchased, retained,
sold or loaned by the Fund, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties
and obligations under this Agreement, shall act in
conformity with the Articles of Incorporation, By-Laws
and Prospectus (hereinafter defined) of the Fund and
with the instructions and directions of the Board of
Directors of the Fund and will conform to and comply
with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities to
be purchased or sold by the Fund and will place orders
pursuant to its determinations with or through such
persons, brokers or dealers (including but not limited
to Prudential-Bache Securities Inc.) in conformity with
the policy with respect to brokerage as set forth in
the Fund's Registration Statement and Prospectus
(hereinafter defined) or as the Board of Directors may
direct from time to time. In providing the Fund with
investment supervision, it is recognized that the
Manager will give primary consideration to securing the
3
<PAGE>
most favorable price and efficient execution.
Consistent with this policy, the Manager may consider
the financial responsibility, research and investment
information and other services provided by brokers or
dealers who may effect or be a party to any such
transaction or other transactions to which other
clients of the Manager may be a party. It is
understood that Prudential-Bache Securities Inc. may be
used as principal broker for securities transactions
but that no formula has been adopted for allocation of
the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the
Manager have access to supplemental investment and
market research and security and economic analysis
provided by brokers and that such brokers may execute
brokerage transactions at a higher cost to the Fund
than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable
price and efficient execution. Therefore, the Manager
is authorized to pay higher brokerage commissions for
the purchase and sale of securities for the Fund to
brokers who provide such research and analysis, subject
to review by the Fund's Board of Directors from time to
time with respect to the extent and continuation of
this practice. It is understood that the services
4
<PAGE>
provided by such broker may be useful to the Manager in
connection with its services to other clients.
On occasions when the Manager deems the purchase
or sale of a security to be in the best interest of the
Fund as well as other clients of the Manager or the
Subadviser, the Manager, to the extent permitted by
applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be
sold or purchased in order to obtain the most favorable
price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Manager in the
manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund
and to such other clients.
(d) The Manager shall maintain all books and
records with respect to the Fund's portfolio
transactions and shall render to the Fund's Board of
Directors such periodic and special reports as the
Board may reasonably request.
(e) The Manager shall be responsible for the
financial and accounting records to be maintained by
the Fund (including those being maintained by the
Fund's Custodian).
5
<PAGE>
(f) The Manager shall provide the Fund's
Custodian on each business day with information
relating to all transactions concerning the Fund's
assets.
(g) The investment management services of the
Manager to the Fund under this Agreement are not to be
deemed exclusive, and the Manager shall be free to
render similar services to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, as
filed with the Secretary of State of Maryland (such
Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein
called the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in
effect on the date hereof and as amended from time to
time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of
Directors of the Fund authorizing the appointment of
the Manager and approving the form of this agreement;
(d) Registration Statement under the 1940 Act and
the Securities Act of 1933, as amended, on Form N-1A
(the "Registration Statement"), as filed with the
Securities and Exchange Commission (the "Commission")
6
<PAGE>
relating to the Fund and shares of the Fund's Common
Stock and all amendments thereto;
(e) Notification of Registration of the Fund
under the 1940 Act on Form N-8A as filed with the
Commission and all amendments thereto; and
(f) Prospectus of the Fund (such Prospectus and
Statement of Additional Information, as currently in
effect and as amended or supplemented from time to
time, being herein called the "Prospectus").
4. The Manager shall authorize and permit 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 are elected. All services to
be furnished by the Manager under this Agreement may be furnished through
the medium of any such directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that
all records which it maintains for the Fund are the property of the Fund
and it will surrender promptly to the Fund any such records upon the Fund's
request, provided however that the Manager may retain a copy of such
records. The Manager further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any such records as are required to be
maintained by the Manager pursuant to Paragraph 2 hereof.
7
<PAGE>
6. During the term of this Agreement, the Manager shall pay the
following expenses:
(i) the salaries and expenses of all personnel of
the Fund and the Manager except the fees and expenses
of directors who are not affiliated persons of the
Manager or the Fund's investment adviser,
(ii) all expenses incurred by the Manager or by
the Fund in connection with managing the ordinary
course of the Fund's business other than those assumed
by the Fund herein, and
(iii) the costs and expenses payable to PIC
pursuant to the Subadvisory Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in
connection with the management of the investment and
reinvestment of the Fund's assets,
(b) the fees and expenses of directors who are
not affiliated persons of the Manager or the Fund's
investment adviser,
(c) the fees and expenses of the Custodian that
relate to (i) the custodial function and the
recordkeeping connected therewith, (ii) preparing and
maintaining the general accounting records of the Fund
and the providing of any such records to the Manager
useful to the Manager in connection with the Manager's
8
<PAGE>
responsibility for the accounting records of the Fund
pursuant to Section 31 of the 1940 Act and the rules
promulgated thereunder, (iii) the pricing of the shares
of the Fund, including the cost of any pricing service
or services which may be retained pursuant to the
authorization of the Board of Directors of the Fund,
and (iv) for both mail and wire orders, the cashiering
function in connection with the issuance and redemption
of the Fund's securities,
(d) the fees and expenses of the Fund's Transfer
and Dividend Disbursing Agent, which may be the
Custodian, that relate to the maintenance of each
shareholder account,
(e) the charges and expenses of legal counsel and
independent accountants for the Fund,
(f) brokers' commissions and any issue or
transfer taxes chargeable to the Fund in connection
with its securities,
(g) all taxes and corporate fees payable by the
Fund to federal, state or other governmental agencies,
(h) the fees of any trade associations of which
the Fund may be a member,
(i) the cost of stock certificates representing,
and/or non-negotiable share deposit receipts
evidencing, shares of the Fund,
9
<PAGE>
(j) the cost of fidelity, directors and officers
and errors and omissions insurance,
(k) the fees and expenses involved in registering
and maintaining registration of the Fund and of its
shares with the Securities and Exchange Commission,
registering the Fund as a broker or dealer and
qualifying its shares under state securities laws,
including the preparation and printing of the Fund's
registration statements, prospectuses and statements of
additional information for filing under federal and
state securities laws for such purposes,
(l) allocable communications expenses with
respect to investor services and all expenses of
shareholders' and directors' meetings and of preparing,
printing and mailing reports to shareholders in the
amount necessary for distribution to the shareholders,
(m) litigation and indemnification expenses and
other extraordinary expenses not incurred in the
ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to
a Plan of Distribution adopted in conformity with Rule
12b-1 under the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year
(including the fees payable to the Manager but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
10
<PAGE>
expenses and other extraordinary expenses not incurred in the ordinary
course of the Fund's business) exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statute or regulations
of any jurisdictions in which shares of the Fund are then qualified for
offer and sale, the compensation due the Manager will be reduced by the
amount of such excess, or, if such reduction exceeds the compensation
payable to the Manager, the Manager will pay to the Fund the amount of such
reduction which exceeds the amount of such compensation.
8. 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, .35 of
1% of 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 and any payment 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.
9. The Manager shall not be liable for any error of judgment or for
any loss suffered by the Fund in
11
<PAGE>
connection with the matters to which this Agreement relates, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements
of the 1940 Act; provided, however, that this Agreement may be terminated
by the Fund at any time, without the payment of any penalty, by the Board
of Directors of the Fund or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, or by the Manager at
any time, without the payment of any penalty, on not more than 60 days' nor
less than 30 days' written notice to the other party. This Agreement shall
terminate automatically in the event of its assignment (as defined in the
1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a director,
officer or employee of the Fund to engage in any other business or to
devote his
12
<PAGE>
or her time and attention in part to the management or other aspects of any
business, whether of a similar or dissimilar nature, nor limit or restrict
the right of the Manager to engage in any other business or to render
services of any kind to any other corporation, firm, individual or
association.
12. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Fund or the public, which refer in any
way to the Manager, prior to use thereof and not to use such material if
the Manager reasonably objects in writing within five business days (or
such other time as may be mutually agreed) after receipt thereof. In the
event of termination of this Agreement, the Fund will continue to furnish
to the Manager copies of any of the above mentioned materials which refer
in any way to the Manager. Sales literature may be furnished to the Manager
hereunder by first class or overnight mail, facsimile
13
<PAGE>
transmission equipment or hand delivery. The Fund shall furnish or
otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time
to time, reasonably requests in order to discharge its obligations
hereunder.
14. This Agreement may be amended by mutual consent, but the consent
of the Fund must be obtained in conformity with the requirements of the
1940 Act.
15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at One Seaport Plaza,
New York, N.Y. 10292, Attention: Secretary; or (2) to the Fund at One
Seaport Plaza, New York, N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
17. The Fund may use the name "Prudential-Bache Utility Fund, Inc." or
any name including the words "Prudential" or "Bache" only for so long as
this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall
have succeeded to the Manager's business as Manager or any extension,
renewal or amendment thereof remain in effect. At such time as such an
agreement
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<PAGE>
shall no longer be in effect the Fund will (to the extent that it lawfully
can) cease to use such a name or any other name indicating that it is
advised by, managed by or otherwise connected with the Manager, or any
organization which shall have so succeeded to such businesses. In no event
shall the Fund use the name "Prudential-Bache Utility Fund, Inc." or any
name including the word "Prudential" or "Bache" if the Manager's function
is transferred or assigned to a company of which The Prudential Insurance
Company of America does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL-BACHE UTILITY FUND, INC.
By_________________________________
President (Title)
PRUDENTIAL MUTUAL FUND MANAGEMENT,
INC.
By_________________________________
Executive Vice President (Title)
15
99.6(c)
PRUDENTIAL-BACHE UTILITY FUND, INC.
Amended and Restated
Distribution Agreement
(Class A Shares)
Agreement, dated as of January 22, 1990 and amended and
restated as of July 1, 1993, between Prudential-Bache Utility Fund,
Inc., a Maryland Corporation (the Fund) and Prudential Mutual Fund
Distributors, Inc., a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class A shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is engaged in
the business of selling shares of registered investment companies
either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other, with respect to the continuous offering
of the Fund's Class A shares from and after the date hereof in
order to promote the growth of the Fund and facilitate the
distribution of its Class A shares; and
WHEREAS, the Fund has adopted a distribution and service plan
pursuant to Rule 12b-1 under the Investment Company Act (the Plan)
authorizing payments by the Fund to the Distributor with respect to
the distribution of Class A shares of the Fund and the maintenance
of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class A shares of the Fund to
sell Class A shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class A
shares of the Fund to the Distributor on the terms and conditions
set forth below.
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<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's
Class A shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class A shares from the Fund shall not apply to Class A
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A shares
issued by the Fund pursuant to reinvestment of dividends or capital
gains distributions.
2.3 Such exclusive rights shall not apply to Class A shares
issued by the Fund pursuant to the reinstatement privilege afforded
redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made
through the Fund's transfer and dividend disbursing agent in the
manner set forth in the currently effective Prospectus of the Fund.
The term "Prospectus" shall mean the Prospectus and Statement of
Additional Information included as part of the Fund's Registration
Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and
the term "Registration Statement" shall mean the Registration
Statement filed by the Fund with the Securities and Exchange
Commission and effective under the Securities Act of 1933, as
amended (Securities Act), and the Investment Company Act, as such
Registration Statement is amended from time to time.
Section 3. Purchase of Class A Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund
the Class A shares needed, but not more than the Class A shares
needed (except for clerical errors in transmission) to fill
unconditional orders for Class A shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
3.2 The Class A shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors
at the offering price as set forth in the Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of its
Class A shares at times when redemption is suspended pursuant to
the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board of Directors. The Fund shall also have
the right to suspend the sale of its Class A shares if a banking
moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for
Class A shares received by the Distributor. Any order may be
rejected by the Fund; provided, however, that the Fund will not
arbitrarily or without reasonable cause refuse to accept or confirm
orders for the purchase of Class A shares. The Fund (or its agent)
will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts for such Class A shares
pursuant to the instructions of the Distributor. Payment shall be
made to the Fund in New York Clearing House funds or federal funds.
The Distributor agrees to cause such payment and such instructions
to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the
Fund
4.1 Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem
the Class A shares so tendered in accordance with its Articles of
Incorporation as amended from time to time, and in accordance with
the applicable provisions of the Prospectus. The price to be paid
to redeem or repurchase the Class A shares shall be equal to the
net asset value determined as set forth in the Prospectus. All
payments by the Fund hereunder shall be made in the manner set
forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption
price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh calendar
day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class A shares
shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions
of the Prospectus.
4.3 Redemption of Class A shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practicable
or it is not reasonably practicable for the Fund fairly to
3
<PAGE>
determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class
A shares as provided herein, the Fund agrees to sell its Class A
shares so long as it has Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class A shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to
the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class A shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
A shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class A shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class A shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 9.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort
to effect sales of Class A shares of the Fund, but shall not be
obligated to sell any specific number of Class A shares. Sales of
the Class A shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use
its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the
collection of amounts payable by investors and selected dealers on
such sales and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class A shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class A shares only to such selected dealers
as are members in good standing of the NASD. Class A shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any portion of
any front-end sales charge which is imposed on sales of Class A
shares and not reallocated to selected dealers as set forth in the
Prospectus, subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice. Payment of these amounts to
the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. Reimbursement of the Distributor under the Plan
8.1 The Fund shall reimburse the Distributor for costs
incurred by it in performing its duties under the Distribution and
Service Plan and this Agreement including amounts paid on a
5
<PAGE>
reimbursement basis to Prudential Securities Incorporated
(Prudential Securities) and Pruco Securities Corporation (Prusec),
affiliates of the Distributor, under the selected dealer agreements
between the Distributor and Prudential Securities and Prusec,
respectively, amounts paid to other securities dealers or financial
institutions under selected dealer agreements between the
Distributor and such dealers and institutions and amounts paid for
personal service and/or the maintenance of shareholder accounts.
Amounts reimbursable under the Plan shall be accrued daily and paid
monthly or at such other intervals as the Board of Directors may
determine but shall not be paid at a rate that exceeds .30 of 1%,
which amount includes a service fee of up to .25 of 1%, per annum
of the average daily net assets of the Class A shares of the Fund.
Payment of the distribution and service fee shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any
amendment thereto) is in effect, at the request of the Board of
Directors or any agent or representative of the Fund, the
Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Costs of the Distributor subject to reimbursement
hereunder are costs of performing distribution activities with
respect to the Class A shares of the Fund and may include, among
others:
(a) amounts paid to Prudential Securities in
reimbursement of costs incurred by Prudential
Securities in 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 in reimbursement of
costs incurred by Prusec in performing
services under a selected dealer agreement
between Prusec and the Distributor for sale of
6
<PAGE>
Class A shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(c) sales commissions and trailer commissions paid
to, or on account of, broker-dealers and
financial institutions (other than Prudential
Securities and Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class A shares of
the Fund;
(d) amounts paid to, or an account of, account
executives of Prudential Securities, Prusec,
or of other broker-dealers or financial
institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a) and (b)
of the foregoing sentence include (i) lease expenses, (ii) salaries
and benefits of personnel including operations and sales support
personnel, (iii) utility expenses, (iv) communications expenses,
(v) sales promotion expenses, (vi) expenses of postage, stationery
and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class A shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
7
<PAGE>
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
A shares, so long as the Plan is in effect.
9.2 If the Plan is terminated or discontinued, the costs
previously incurred by the Distributor in performing the duties set
forth in Section 6 hereof shall be borne by the Distributor and
will not be subject to reimbursement by the Fund.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person
may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, director, trustee or controlling
person unless a court of competent jurisdiction shall determine in
a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or
trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in
a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors and any such controlling
person as aforesaid is expressly conditioned upon the Fund's being
promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such
8
<PAGE>
notification to be given by letter or telegram addressed to the
Fund at its principal business office. The Fund agrees promptly to
notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or directors in
connection with the issue and sale of any Class A shares.
10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Directors and any person who controls the
Fund, if any, within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from
the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors
or by vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, or by the Distributor, on sixty
9
<PAGE>
(60) days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Directors cast in person at a
meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
/s/Robert F. Gunia
By: ________________________
Robert F. Gunia
Executive Vice President
Prudential-Bache Utility
Fund, Inc.
/s/Lawrence C. McQuade
By: ________________________
Lawrence C. McQuade
President
DSTAGRA.UTF
10
99.6(d)
PRUDENTIAL-BACHE UTILITY FUND, INC.
Amended and Restated
Distribution Agreement
(Class B Shares)
Agreement, dated as of July 15, 1981, as amended on May 17,
1985, as amended and restated as of January 22, 1990, and amended
and restated as of July 1, 1993, between Prudential-Bache Utility
Fund, Inc., a Maryland Corporation (the Fund) and Prudential
Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class B shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is engaged in
the business of selling shares of registered investment companies
either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other, with respect to the continuous offering
of the Fund's Class B shares from and after the date hereof in
order to promote the growth of the Fund and facilitate the
distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan
pursuant to Rule 12b-1 under the Investment Company Act (the Plan)
authorizing payments by the Fund to the Distributor with respect to
the distribution of Class B shares of the Fund and the maintenance
of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class B shares of the Fund to
sell Class B shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class B
shares of the Fund to the Distributor on the terms and conditions
set forth below.
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<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's
Class B shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to Class B
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares
issued by the Fund pursuant to reinvestment of dividends or capital
gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares
issued by the Fund pursuant to the reinstatement privilege afforded
redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made
through the Fund's transfer and dividend disbursing agent in the
manner set forth in the currently effective Prospectus of the Fund.
The term "Prospectus" shall mean the Prospectus and Statement of
Additional Information included as part of the Fund's Registration
Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and
the term "Registration Statement" shall mean the Registration
Statement filed by the Fund with the Securities and Exchange
Commission and effective under the Securities Act of 1933, as
amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund
the Class B shares needed, but not more than the Class B shares
needed (except for clerical errors in transmission) to fill
unconditional orders for Class B shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class B shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
2
<PAGE>
3.2 The Class B shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors
at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its
Class B shares at times when redemption is suspended pursuant to
the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board of Directors. The Fund shall also have
the right to suspend the sale of its Class B shares if a banking
moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for
Class B shares received by the Distributor. Any order may be
rejected by the Fund; provided, however, that the Fund will not
arbitrarily or without reasonable cause refuse to accept or confirm
orders for the purchase of Class B shares. The Fund (or its agent)
will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts for such Class B shares
pursuant to the instructions of the Distributor. Payment shall be
made to the Fund in New York Clearing House funds or federal funds.
The Distributor agrees to cause such payment and such instructions
to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the
Fund
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem
the Class B shares so tendered in accordance with its Articles of
Incorporation as amended from time to time, and in accordance with
the applicable provisions of the Prospectus. The price to be paid
to redeem or repurchase the Class B shares shall be equal to the
net asset value determined as set forth in the Prospectus. All
payments by the Fund hereunder shall be made in the manner set
forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption
price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh day
subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable
contingent deferred sales charge shall be paid to the Distributor
and (b) the balance shall be paid to or for the account of the
redeeming shareholder, in each case in accordance with applicable
provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended
at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practicable
3
<PAGE>
or it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Class
B shares as provided herein, the Fund agrees to sell its Class B
shares so long as it has Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to
the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class B shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
B shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class B shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class B shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 9.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and
4
<PAGE>
activities as may be required by the Fund in connection with such
qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort
to effect sales of Class B shares of the Fund, but shall not be
obligated to sell any specific number of Class B shares. Sales of
the Class B shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use
its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the
collection of amounts payable by investors and selected dealers on
such sales and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class B shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class B shares only to such selected dealers
as are members in good standing of the NASD. Class B shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any contingent
deferred sales charge which is imposed with respect to repurchases
and redemptions of Class B shares as set forth in the Prospectus,
subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice. Payment of these amounts to the Distributor
is not contingent upon the adoption or continuation of the Plan.
5
<PAGE>
Section 8. Reimbursement of the Distributor under the Plan
8.1 The Fund shall reimburse the Distributor for all costs
incurred by it in performing its duties under the Distribution and
Service Plan and this Agreement including amounts paid on a
reimbursement basis to Pruco Securities Corporation (Prusec), an
affiliate of the Distributor, under the selected dealer agreement
between the Distributor and Prusec, amounts paid to other
securities dealers or financial institutions under selected dealer
agreements between the Distributor and such dealers and
institutions and amounts paid for personal service and/or the
maintenance of shareholder accounts. Reimbursement shall only be
made to the extent that payments by investors pursuant to Section
7 hereof are not sufficient to cover such costs. Amounts
reimbursable under the Plan shall be accrued daily and paid monthly
or at such other intervals as the Board of Directors may determine
but shall not be paid at a rate that exceeds the annual
distribution and service fee of 1% (including an asset-based sales
charge of up to .75 of 1% and a service fee of up to .25 of 1%) per
annum of the average daily net assets of the Class B shares of the
Fund. Amounts reimbursable under the Plan that are not paid
because they exceed .75 of 1% per annum of the average daily net
assets of the Class B shares (Carry Forward Amounts) shall be
carried forward and paid by the Fund as permitted within such
payment limitation so long as the Plan, including any amendments
thereto, is in effect, subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions (including trailer commissions) and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which
have selected dealer agreements with the Distributor. So long as
the Plan (or any amendment thereto) is in effect, at the request of
the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Costs of the Distributor subject to reimbursement
hereunder are all costs of performing distribution activities with
respect to the Class B shares of the Fund and include, among
others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
6
<PAGE>
(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 in reimbursement of all
costs incurred by Prusec in performing
services under a selected dealer agreement
between Prusec and the Distributor for sale of
Class B shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class B shares of
the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
personal service and/or the maintenance of
shareholder accounts;
(f) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund;
(g) to the extent permitted by applicable law,
interest on unreimbursed Carry Forward Amounts
as defined in Section 8.1 at a rate equal to
that paid by Prudential Securities for bank
borrowings as such rate may vary from day to
day, not to exceed that permitted under
Article III, Section 26, of the NASD Rules of
Fair Practice; and
(h) to the extent permitted by applicable law,
unreimbursed distribution expenses incurred
with respect to the sale of Class B shares
that have been exchanged into the Fund.
7
<PAGE>
Indirect and overhead costs referred to in clauses (b) and (c)
of the foregoing sentence include (i) lease expenses, (ii) salaries
and benefits of personnel including operations and sales support
personnel, (iii) utility expenses, (iv) communications expenses,
(v) sales promotion expenses, (vi) expenses of postage, stationery
and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class B shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
B shares, so long as the Plan is in effect.
9.2 Although the Fund is not liable for unreimbursed
distribution expenses, in the event of termination of the Plan, the
Board of Directors of the Fund may consider the appropriateness of
having the Class B shares of the Fund reimburse the Distributor for
the then outstanding balance of all unreimbursed distribution
expenses plus interest thereon to the extent permitted by
applicable law from the date of this Agreement.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling person
may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus
8
<PAGE>
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, Director or controlling person
unless a court of competent jurisdiction shall determine in a final
decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its
officers and Directors and any such controlling person as aforesaid
is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or
Directors, or any such controlling person, such notification to be
given in writing addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or Directors in connection with the issue and sale of
any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Directors and any person who controls the
Fund, if any, within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
9
<PAGE>
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from
the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors
or by vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Board of Directors cast in person
at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
10
<PAGE>
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Securities
Incorporated
/s/Robert F. Gunia
By: ________________________
Robert F. Gunia
Senior Vice President
Prudential-Bache Utility
Fund, Inc.
/s/Lawrence C. McQuade
By: ________________________
Lawrence C. McQuade
President
DSTAGRB.UTF
11
99.6(e)
PRUDENTIAL _________ FUND
Form of
Distribution Agreement
(Class A Shares)
Agreement made as of _____________199_, between
Prudential ________ Fund [a Maryland Corporation/Massachusetts
Business Trust] (the Fund) and Prudential Mutual Fund Distributors,
Inc., a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class A shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered investment
companies either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into
an agreement with each other, with respect to the continuous
offering of the Fund's Class A shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the
Fund it is contemplated that the Fund will adopt a plan of
distribution pursuant to Rule 12b-1 under the Investment Company
Act (the Plan) authorizing payments by the Fund to the Distributor
with respect to the distribution of Class A shares of the Fund and
the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class A shares of the Fund to
sell Class A shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class A
shares of the Fund to the Distributor on the terms and conditions
set forth below.
1
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of
the Fund to act as principal underwriter and distributor of the
Fund's Class A shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class A shares from the Fund shall not apply to Class A
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A
shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the Fund's
Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933,
as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class A Shares from the Fund
3.1 The Distributor shall have the right to buy from the
Fund the Class A shares needed, but not more than the Class A
shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class A shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
3.2 The Class A shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the
Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of
its Class A shares at times when redemption is suspended pursuant
to the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board of Directors. The Fund shall also
have the right to suspend the sale of its Class A shares if a
banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class A shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class A shares. The Fund (or
its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for such
Class A shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund
4.1 Any of the outstanding Class A shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class A shares so tendered in accordance
with its Articles of Incorporation as amended from time to time,
and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value determined as set forth in
the Prospectus. All payments by the Fund hereunder shall be made
in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh calendar
day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class A shares
shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions
of the Prospectus.
4.3 Redemption of Class A shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class A shares as provided herein, the Fund agrees to sell its
Class A shares so long as it has Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class A shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject
to the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class A shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
A shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class A shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class A shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 9.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class A shares of the Fund, but shall not
be obligated to sell any specific number of Class A shares. Sales
of the Class A shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall
use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected dealers
on such sales and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class A shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class A shares only to such selected dealers
as are members in good standing of the NASD. Class A shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on sales of Class A
shares and not reallocated to selected dealers as set forth in the
Prospectus, subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice. Payment of these amounts to
the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of .30 of 1% (including an asset-based
sales charge of .05 of 1% and a service fee of .25 of 1%) per annum
5
<PAGE>
of the average daily net assets of the Class A shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any
amendment thereto) is in effect, at the request of the Board of
Directors or any agent or representative of the Fund, the
Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Expenses of distribution with respect to the Class
A shares of the Fund include, among others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account of,
account executives and indirect and overhead
costs associated with distribution activities,
including central office and branch expenses;
(b) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class A
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(c) sales commissions and trailer commissions paid
to, or on account of, broker-dealers and
financial institutions (other than Prudential
Securities and Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class A shares of
the Fund.
(d) amounts paid to, or an account of, account
executives of Prudential Securities, Prusec,
6
<PAGE>
or of other broker-dealers or financial
institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a)
and (b) of the foregoing sentence include (i) lease expenses, (ii)
salaries and benefits of personnel including operations and sales
support personnel, (iii) utility expenses, (iv) communications
expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class A shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
A shares, so long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person
may incur under the Securities Act, or under common law or
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, director, trustee or controlling
person unless a court of competent jurisdiction shall determine in
a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or
trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in
a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such
controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the
Distributor, its officers or directors or trustees, or any such
controlling person, such notification to be given by letter or
telegram addressed to the Fund at its principal business office.
The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or directors in connection with the issue and sale of
any Class A shares.
10.2 The Distributor agrees to indemnify, defend and
hold the Fund, its officers and Directors and any person who
controls the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
8
<PAGE>
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from
the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule 12b-1
Directors or by vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities", when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Directors cast in person at a
meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
9
<PAGE>
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
*[Section 14. Liabilities of the Fund
The name "Prudential ___________ Trust" is the
designation of the Trustees under a Declaration of Trust dated
______, 19__ and all persons dealing with the Fund must look solely
to the property of the Fund for the enforcement of any claims
against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered
into on behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: ________________________
_______________________
(Title)
Prudential______________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
[mc]cla-comp.agr
10
99.6(f)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(Class B Shares)
Agreement made as of ______ __, 199_, between Prudential
________ Fund, [a Maryland Corporation/Massachusetts Business
Trust] (the Fund) and Prudential Securities Incorporated, a
Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class B shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered investment
companies either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into
an agreement with each other, with respect to the continuous
offering of the Fund's Class B shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service
plan pursuant to Rule 12b-1 under the Investment Company Act (the
Plan) authorizing payments by the Fund to the Distributor with
respect to the distribution of Class B shares of the Fund and the
maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class B shares of the Fund to
sell Class B shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class B
shares of the Fund to the Distributor on the terms and conditions
set forth below.
1
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of
the Fund to act as principal underwriter and distributor of the
Fund's Class B shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to Class B
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the Fund's
Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933,
as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
3.1 The Distributor shall have the right to buy from the
Fund the Class B shares needed, but not more than the Class B
shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class B shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class B shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
3.2 The Class B shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the
Prospectus.
3.3 The Fund shall have the right to suspend the sale of
its Class B shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board of Directors. The Fund shall also
have the right to suspend the sale of its Class B shares if a
banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class B shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class B shares. The Fund (or
its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for such
Class B shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund
4.1 Any of the outstanding Class B shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class B shares so tendered in accordance
with its Articles of Incorporation as amended from time to time,
and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in
the Prospectus. All payments by the Fund hereunder shall be made
in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh day
subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable
contingent deferred sales charge shall be paid to the Distributor
and (b) the balance shall be paid to or for the account of the
redeeming shareholder, in each case in accordance with applicable
provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class B shares as provided herein, the Fund agrees to sell its
Class B shares so long as it has Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject
to the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class B shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
B shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class B shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class B shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 9.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class B shares of the Fund, but shall not
be obligated to sell any specific number of Class B shares. Sales
of the Class B shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall
use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected dealers
on such sales and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class B shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class B shares only to such selected dealers
as are members in good standing of the NASD. Class B shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any
contingent deferred sales charge which is imposed with respect to
repurchases and redemptions of Class B shares as set forth in the
Prospectus, subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of
the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of 1% (including an asset-based sales
charge of .75 of 1% and a service fee of .25 of 1%) per annum of
5
<PAGE>
the average daily net assets of the Class B shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions (including trailer commissions) and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which
have selected dealer agreements with the Distributor. So long as
the Plan (or any amendment thereto) is in effect, at the request of
the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Expenses of distribution with respect to the Class
B shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class B
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class B shares of
the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b)
and (c) of the foregoing sentence include (i) lease expenses, (ii)
salaries and benefits of personnel including operations and sales
support personnel, (iii) utility expenses, (iv) communications
expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class B shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
B shares, so long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling person
may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, Director or controlling person
unless a court of competent jurisdiction shall determine in a final
decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its
officers and Directors and any such controlling person as aforesaid
is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or
Directors, or any such controlling person, such notification to be
given in writing addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or Directors in connection with the issue and sale of
any Class B shares.
10.2 The Distributor agrees to indemnify, defend and
hold the Fund, its officers and Directors and any person who
controls the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
8
<PAGE>
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the
date first above written and shall remain in force for two years
from the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule 12b-1
Directors or by vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Board of Directors cast in person
at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the
latter shall control.
*[Section 14. Liabilities of the Fund
The name "Prudential ___________ Trust" is the
designation of the Trustees under a Declaration of Trust dated
______, 19__ and all persons dealing with the Fund must look solely
to the property of the Fund for the enforcement of any claims
against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered
into on behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
[mc]clb-comp.agr
10
99.6(g)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(Class C Shares)
Agreement made as of ______ __, 199_, between Prudential
________ Fund, [a Maryland Corporation/Massachusetts Business
Trust] (the Fund) and Prudential Securities Incorporated, a
Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class C shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered investment
companies either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into
an agreement with each other, with respect to the continuous
offering of the Fund's Class C shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service
plan pursuant to Rule 12b-1 under the Investment Company Act (the
Plan) authorizing payments by the Fund to the Distributor with
respect to the distribution of Class C shares of the Fund and the
maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class C shares of the Fund to
sell Class C shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class C
shares of the Fund to the Distributor on the terms and conditions
set forth below.
1
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of
the Fund to act as principal underwriter and distributor of the
Fund's Class C shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class C shares from the Fund shall not apply to Class C
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C
shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the Fund's
Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933,
as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class C Shares from the Fund
3.1 The Distributor shall have the right to buy from the
Fund the Class C shares needed, but not more than the Class C
shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class C shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class C shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
3.2 The Class C shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the
Prospectus.
3.3 The Fund shall have the right to suspend the sale of
its Class C shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board of Directors. The Fund shall also
have the right to suspend the sale of its Class C shares if a
banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class C shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class C shares. The Fund (or
its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for such
Class C shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund
4.1 Any of the outstanding Class C shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class C shares so tendered in accordance
with its Articles of Incorporation as amended from time to time,
and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class C shares
shall be equal to the net asset value determined as set forth in
the Prospectus. All payments by the Fund hereunder shall be made
in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh day
subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable
contingent deferred sales charge shall be paid to the Distributor
and (b) the balance shall be paid to or for the account of the
redeeming shareholder, in each case in accordance with applicable
provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class C shares as provided herein, the Fund agrees to sell its
Class C shares so long as it has Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class C shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject
to the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class C shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class C shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
C shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class C shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class C shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 9.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
4
<PAGE>
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class C shares of the Fund, but shall not
be obligated to sell any specific number of Class C shares. Sales
of the Class C shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall
use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected dealers
on such sales and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class C shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class C shares only to such selected dealers
as are members in good standing of the NASD. Class C shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any
contingent deferred sales charge which is imposed with respect to
repurchases and redemptions of Class C shares as set forth in the
Prospectus, subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of
the Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of 1% (including an asset-based sales
charge of .75 of 1% and a service fee of .25 of 1%) per annum of
5
<PAGE>
the average daily net assets of the Class C shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions (including trailer commissions) and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which
have selected dealer agreements with the Distributor. So long as
the Plan (or any amendment thereto) is in effect, at the request of
the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Expenses of distribution with respect to the Class
C shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class C
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class C shares of
the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
6
<PAGE>
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b)
and (c) of the foregoing sentence include (i) lease expenses, (ii)
salaries and benefits of personnel including operations and sales
support personnel, (iii) utility expenses, (iv) communications
expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class C shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
C shares, so long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling person
may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, Director or controlling person
unless a court of competent jurisdiction shall determine in a final
decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its
officers and Directors and any such controlling person as aforesaid
is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or
Directors, or any such controlling person, such notification to be
given in writing addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or Directors in connection with the issue and sale of
any Class C shares.
10.2 The Distributor agrees to indemnify, defend and
hold the Fund, its officers and Directors and any person who
controls the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
8
<PAGE>
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the
date first above written and shall remain in force for two years
from the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule 12b-1
Directors or by vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Board of Directors cast in person
at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the
latter shall control.
*[Section 14. Liabilities of the Fund
The name "Prudential ___________ Trust" is the
designation of the Trustees under a Declaration of Trust dated
______, 19__ and all persons dealing with the Fund must look solely
to the property of the Fund for the enforcement of any claims
against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered
into on behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
[mc]clb-comp.agr
10
99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 19 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 8, 1994, relating to the financial statements and financial highlights
of Prudential Utility Fund, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Custodian and Transfer and
Dividend Disbursing Agent and Independent Accountants" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
/s/ PRICE WATERHOUSE
____________________
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
May 6, 1994
99.15(a)
PRUDENTIAL-BACHE UTILITY FUND, INC.
Amended and Restated
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-Bache Utility Fund, Inc., (the Fund) and
by Prudential Mutual Fund Distributors, Inc., the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement (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 reimburse the Distributor for costs
incurred by the Distributor in distributing Class A shares of the
Fund and to pay the Distributor a service fee for the maintenance
of Class A shareholder accounts.
A majority of the Board of Directors or Trustees of the Fund,
including a majority of those Directors or Trustees who are not
"interested persons" of the Fund (as defined in the Investment
Company Act) and who have no direct or indirect financial interest
1
<PAGE>
in the operation of this Plan or any agreements related to it (the
Rule 12b-1 Directors or Trustees), have determined by votes cast in
person at a meeting called for the purpose of voting on this Plan
that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures under
this Plan by the Fund for Distribution Activities (defined below)
are primarily intended to result in the sale of Class A shares of
the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A
shares of the Fund and to service shareholder accounts using all of
the facilities of the distribution networks of Prudential
Securities Incorporated (Prudential Securities) and Pruco
Securities Corporation (Prusec), including sales personnel and
branch office and central support systems, and also using such
2
<PAGE>
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 reimburse the Distributor for costs incurred by
it in providing personal service and/or maintaining shareholder
accounts at a rate not to exceed .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 reimbursable 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 or Trustees
may determine. Costs of the Distributor subject to reimbursement
hereunder include account servicing fees and indirect and overhead
costs associated with providing personal service and/or maintaining
shareholder accounts.
3. Payment for Distribution Activities
The Fund shall reimburse the Distributor for costs incurred by
it in performing Distribution Activities at a rate which, together
with the service fee (described in Section 2 hereof), shall not
exceed .30 of 1% per annum of the average daily net assets of the
Class A shares of the Fund. The Fund shall calculate and accrue
daily amounts reimbursable 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 or Trustees may determine.
3
<PAGE>
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 the Class B 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 or Trustees. The allocation of distribution
expenses among Classes will be subject to the review of the Board
of Directors or Trustees. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred,
unless otherwise determined by the Board of Directors or Trustees.
Costs of the Distributor subject to reimbursement hereunder
are costs of performing Distribution Activities and may include,
among others:
(a) amounts paid to Prudential Securities in
reimbursement of costs incurred by Prudential
Securities in 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 in reimbursement of
costs incurred by Prusec in 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;
4
<PAGE>
(c) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
prospectuses, statements of additional
information and periodic financial reports and
sales literature to persons other than current
shareholders of the Fund; and
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prudential Securities and Prusec)
which have entered into selected dealer
agreements with the Distributor with respect
to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors or Trustees of the Fund for review, at least
quarterly, a written report specifying in reasonable detail the
amounts expended for Distribution Activities (including payment of
the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees 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 or Trustees
of the Fund of the commissions and account servicing fees to be
paid by the Distributor to account executives of the Distributor
and to broker-dealers and financial institutions which have
selected dealer agreements with the Distributor.
5
<PAGE>
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the
Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, the Plan shall,
unless earlier terminated in accordance with its terms, continue in
full force and effect thereafter for so long as such
continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a
majority of the Rule 12b-1 Directors or Trustees by votes cast in
person at a meeting called for the purpose of voting on the
continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors or Trustees, or by vote of a majority
of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the distribution
expenses to be paid as provided for in Section 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
6
<PAGE>
the Plan, including the addition or deletion of categories of
expenditures which are reimbursable hereunder, shall be approved by
a majority of the Board of Directors or the Trustees of the Fund
and a majority of the Rule 12b-1 Directors or Trustees by votes
cast in person at a meeting called for the purpose of voting on the
Plan.
8. Non-interested Directors or Trustees
While the Plan is in effect, the selection and nomination of
the Directors or Trustees who are not "interested persons" of the
Fund (non-interested Directors or Trustees) shall be committed to
the discretion of the non-interested Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
Dated January 22, 1990 and
amended and restated as of July 1, 1993.
DISPLNA.UTF
7
99.15(b)
PRUDENTIAL-BACHE UTILITY FUND, INC.
Amended and Restated
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-Bache Utility Fund, Inc., (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement (the
Distribution Agreement) pursuant to which the Fund will continue to
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 reimburse the Distributor for costs incurred by the
Distributor in distributing Class B shares of the Fund and to pay
the Distributor a service fee for the maintenance of Class B
shareholder accounts. A majority of the Board of Directors or
Trustees of the Fund including a majority who are not "interested
persons" of the Fund (as defined in the Investment Company Act) and
who have no direct or indirect financial interest in the operation
1
<PAGE>
of this Plan or any agreements related to it (the Rule 12b-1
Directors or Trustees), have determined by votes cast in person at
a meeting called for the purpose of voting on this Plan that there
is a reasonable likelihood that adoption of this Plan will benefit
the Fund and its shareholders. Expenditures under this Plan by the
Fund for Distribution Activities (defined below) are primarily
intended to result in the sale of Class B shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B
shares of the Fund and to service shareholder accounts using all of
the facilities of the Prudential Securities distribution network
including sales personnel and branch office and central support
systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select, including
2
<PAGE>
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 reimburse the Distributor for costs incurred by
it in providing personal service and/or maintaining shareholder
accounts at a rate not to exceed .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 reimbursable 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 or Trustees
may determine. Costs of the Distributor subject to reimbursement
hereunder include account servicing fees and indirect and overhead
costs associated with providing personal service and/or maintaining
shareholder accounts.
3. Payment for Distribution Activities
The Fund shall reimburse the Distributor at a rate which,
together with the service fee (described in Section 2 hereof),
shall not exceed 1% per annum of the average daily net assets of
the Class B shares of the Fund for costs incurred by it in
performing Distribution Activities. The Fund shall calculate and
accrue daily amounts reimbursable 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 or Trustees may determine.
Proceeds from contingent deferred sales charges will be applied to
reduce the costs incurred in performing Distribution Activities.
3
<PAGE>
The Fund shall carry forward amounts reimbursable that are not paid
because they exceed .75 of 1% per annum of the average daily net
assets of the Class B shares of the Fund (Carry Forward Amounts)
and shall pay such amounts within the .75 of 1% per annum payment
rate limitation so long as this Plan, including any amendments
hereto, is in effect, subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice. Although the Fund
is not liable for unreimbursed distribution expenses, in the event
of termination or discontinuation of the Plan, the Board of
Directors or Trustees may consider the appropriateness of having
the Class B shares of the Fund reimburse the Distributor for the
then outstanding Carry Forward Amounts plus interest thereon to the
extent permitted by applicable law or regulation from the effective
date of the Plan.
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 the Class A 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 or Trustees. The allocation of distribution
expenses among Classes will be subject to the review of the Board
of Directors or Trustees. Payments hereunder will be applied to
distribution expenses in the order in which they are incurred,
unless otherwise determined by the Board of Directors or Trustees.
4
<PAGE>
Costs of the Distributor subject to reimbursement hereunder
are all costs of performing Distribution Activities and 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 in reimbursement of all
costs incurred by Prusec in 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;
(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 shares of the
Fund;
(f) to the extent permitted by law, interest on
unreimbursed Carry Forward Amounts as defined
in Section 3 at a rate equal to that paid by
Prudential Securities for bank borrowings as
such rate may vary from day to day, not to
exceed that permitted under Article III,
Section 26, of the NASD Rules of Fair
Practice; and
5
<PAGE>
(g) unreimbursed distribution expenses incurred
with respect to the sale of Class B shares
which have been exchanged into the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors or Trustees of the Fund for review, at least
quarterly, a written report specifying in reasonable detail the
amounts expended for Distribution Activities (including payment of
the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
the Fund such additional information as they shall from time to
time reasonably request, including information about Distribution
Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees
of the Fund of the commissions and account servicing fees to be
paid by the Distributor to account executives of the Distributor
and to broker-dealers and other financial institutions which have
selected dealer agreements with the Distributor.
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
6
<PAGE>
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 or Trustees of the Fund and a majority of the Rule
12b-1 Directors or Trustees by votes cast in person at a meeting
called for the purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors or Trustees, or by vote of a majority
of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
7. Amendments
The Plan may not be amended to change the distribution
expenses to be paid as provided for in Section 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, including the addition or deletion of categories of
expenditures which are reimbursable hereunder, shall be approved by
a majority of the Board of Directors or Trustees of the Fund and a
majority of the Rule 12b-1 Directors or Trustees by votes cast in
person at a meeting called for the purpose of voting on the Plan.
8. Non-interested Directors or Trustees
While the Plan is in effect, the selection and nomination of
the Directors or Trustees who are not "interested persons" of the
7
<PAGE>
Fund (non-interested Directors or Trustees) shall be committed to
the discretion of the non-interested Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
Dated January 22, 1990 and
amended and restated as of July 1, 1993
DISPLNB.UTF
8
99.15(c)
PRUDENTIAL ________ FUND
Form of
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 __________ Fund (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor
(the Distributor).
The Fund has entered into a distribution agreement pursuant
to which the Fund will employ the Distributor to distribute Class
A shares issued by the Fund (Class A shares). Under the Plan, the
Fund intends to pay to the Distributor, as compensation for its
services, a distribution and service fee with respect to Class A
shares.
A majority of the Board of Directors or Trustees of the
Fund, including a majority of those Directors or Trustees who are
not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors or Trustees),
have determined by votes cast in person at a meeting called for
the purpose of voting on this Plan that there is a reasonable
1
<PAGE>
likelihood that adoption of this Plan will benefit the Fund and
its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to
result in the sale of Class A shares of the Fund within the
meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their
account executives to provide distribution assistance to their
customers who are investors in the Fund, to defray the costs and
expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other
promotional and distribution activities and to provide for the
servicing and maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A
shares of the Fund and to service shareholder accounts using all
of the facilities of the distribution networks of Prudential
Securities Incorporated (Prudential Securities) and Pruco
Securities Corporation (Prusec), including sales personnel and
branch office and central support systems, and also using such
other qualified broker-dealers and financial institutions as the
Distributor may select. Services provided and activities
undertaken to distribute Class A shares of the Fund are referred
to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder
accounts a service fee of .25 of 1% per annum of the average
daily net assets of the Class A shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors/Trustees may
determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for
its services a distribution fee, together with the service fee
(described in Section 2 hereof), of .30 of 1% per annum of the
average daily net assets of the Class A shares of the Fund for
the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares
of the Fund hereunder and shall pay such amounts monthly or at
such other intervals as the Board of Directors/Trustees may
determine. Amounts payable under the Plan shall be subject to
the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class A shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class A shares according to the ratio of the
sales of Class A shares to the total sales of the Fund's shares
3
<PAGE>
over the Fund's fiscal year or such other allocation method
approved by the Board of Directors or Trustees. The allocation
of distribution expenses among classes will be subject to the
review of the Board of Directors or Trustees.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among
others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account
of, account executives and indirect and
overhead costs associated with Distribution
Activities, including central office and
branch expenses;
(b) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class A shares of the Fund, including
sales commissions and trailer commissions
paid to, or on account of, agents and
indirect and overhead costs associated with
Distribution Activities;
(c) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
prospectuses, statements of additional
information and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund; and
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prudential Securities and Prusec)
which have entered into selected dealer
agreements with the Distributor with respect
to shares of the Fund.
4
<PAGE>
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors or Trustees of the Fund for review, at least
quarterly, a written report specifying in reasonable detail the
amounts expended for Distribution Activities (including payment
of the service fee) and the purposes for which such expenditures
were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees 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 or
Trustees of the Fund of the commissions and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of
the Fund.
If approved by a vote of a majority of the outstanding
voting securities of the Class A shares of the Fund, the Plan
shall, unless earlier terminated in accordance with its terms,
continue in full force and effect thereafter for so long as such
continuance is specifically approved at least annually by a
5
<PAGE>
majority of the Board of Directors or Trustees of the Fund and a
majority of the Rule 12b-1 Directors or Trustees by votes cast in
person at a meeting called for the purpose of voting on the
continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors or Trustees, or by vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service
and distribution fees to be paid as provided for in Sections 2
and 3 hereof so as to increase materially the amounts payable
under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of
the Fund. All material amendments of the Plan shall be approved
by a majority of the Board of Directors or the Trustees of the
Fund and a majority of the Rule 12b-1 Directors or Trustees by
votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. Rule 12b-1 Directors or Trustees
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors or Trustees shall be committed to the
discretion of the Rule 12b-1 Directors or Trustees.
6
<PAGE>
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.
*[10. Enforcement of Claims.
The name "Prudential ___________ Trust" is the designation
of the Trustees under a Declaration of Trust dated ______, 19__
and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against
the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations
entered into on behalf of the Fund.]
Dated:
[mc]cla-comp.pln
7
99.15(d)
PRUDENTIAL ________ FUND
Form of
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 __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement
pursuant to which the Fund will continue to employ the Distributor
to distribute Class B shares issued by the Fund (Class B shares).
Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with
respect to Class B shares.
A majority of the Board of Directors or Trustees of the Fund
including a majority who are not "interested persons" of the Fund
(as defined in the Investment Company Act) and who have no direct
or indirect financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors or Trustees),
have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
1
<PAGE>
shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to
result in the sale of Class B shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B
shares of the Fund and to service shareholder accounts using all of
the facilities of the Prudential Securities distribution network
including sales personnel and branch office and central support
systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class B shares of the Fund are
referred to herein as "Distribution Activities."
2
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of
.25 of 1% per annum of the average daily net assets of the Class B shares
(service fee). The Fund shall calculate and accrue daily amounts payable by
the Class B shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors/Trustees may
determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its
services a distribution fee of .75 of 1% per annum of the average
daily net assets of the Class B shares of the Fund for the
performance of Distribution Activities. The Fund shall calculate
and accrue daily amounts payable by the Class B shares of the Fund
hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees 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 or Trustees. The allocation of distribution
3
<PAGE>
expenses among classes will be subject to the review of the Board
of Directors or Trustees.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution Activities
including central office and branch expenses;
(c) amounts paid to Prusec for performing services under
a selected dealer agreement between Prusec and the
Distributor for sale of Class B shares of the Fund,
including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through
any available medium, including the cost of printing and
mailing Fund prospectuses, statements of additional
information and periodic financial reports and sales
literature to persons other than current shareholders of
the Fund; and
(e) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and other
financial institutions (other than Prusec) which have
entered into selected dealer agreements with the
Distributor with respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors or Trustees of the Fund for review, at least
quarterly, a written report specifying in reasonable detail the
amounts expended for Distribution Activities (including payment of
the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
4
<PAGE>
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 or Trustees
of the Fund of the commissions and account servicing fees to be
paid by the Distributor to account executives of the Distributor
and to broker-dealers and other financial institutions which have
selected dealer agreements with the Distributor.
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 or Trustees of the Fund and a
majority of the Rule 12b-1 Directors or Trustees by votes cast in
person at a meeting called for the purpose of voting on the
continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors or Trustees, or by vote of a majority
of the outstanding voting securities (as defined in the Investment
5
<PAGE>
Company Act) of the Class B shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3
hereof so as to increase materially the amounts payable under this
Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of
the Board of Directors or Trustees of the Fund and a majority of
the Rule 12b-1 Directors or Trustees by votes cast in person at a
meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors or Trustees
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors or Trustees shall be committed to the
discretion of the Rule 12b-1 Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
*[10. Enforcement of Claims.
The name "Prudential ___________ Trust" is the designation of
the Trustees under a Declaration of Trust dated ______, 19__ and
all persons dealing with the Fund must look solely to the property
6
<PAGE>
of the Fund for the enforcement of any claims against the Fund, and
neither the Trustees, officers, agents of shareholders assume any
personal liability for obligations entered into on behalf of the
Fund.]
Dated:
[mc]clb-comp.pln
7
99.15(e)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth
below which is designed to conform to the requirements of Rule 12b-
1 under the Investment Company Act of 1940 (the Investment Company
Act) and Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (NASD) has
been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement
pursuant to which the Fund will continue to employ the Distributor
to distribute Class C shares issued by the Fund (Class C shares).
Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with
respect to Class C shares.
A majority of the Board of Directors or Trustees of the Fund
including a majority who are not "interested persons" of the Fund
(as defined in the Investment Company Act) and who have no direct
or indirect financial interest in the operation of this Plan or any
agreements related to it (the Rule 12b-1 Directors or Trustees),
have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to
result in the sale of Class C shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C
shares of the Fund and to service shareholder accounts using all of
the facilities of the Prudential Securities distribution network
including sales personnel and branch office and central support
systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and
activities undertaken to distribute Class C shares of the Fund are
referred to herein as "Distribution Activities."
1
<PAGE>
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder accounts
a service fee of .25 of 1% per annum of the average daily net
assets of the Class C shares (service fee). The Fund shall
calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors/Trustees may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its
services a distribution fee of .75 of 1% per annum of the average
daily net assets of the Class C shares of the Fund for the
performance of Distribution Activities. The Fund shall calculate
and accrue daily amounts payable by the Class C shares of the Fund
hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
Amounts payable under the Plan shall be subject to the limitations
of Article III, Section 26 of the NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class C shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class C shares according to the ratio of the sale
of Class C shares to the total sales of the Fund's shares over the
Fund's fiscal year or such other allocation method approved by the
Board of Directors or Trustees. The allocation of distribution
2
<PAGE>
expenses among classes will be subject to the review of the Board
of Directors or Trustees.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution Activities
including central office and branch expenses;
(c) amounts paid to Prusec for performing services under
a selected dealer agreement between Prusec and the
Distributor for sale of Class C shares of the Fund,
including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through
any available medium, including the cost of printing and
mailing Fund prospectuses, statements of additional
information and periodic financial reports and sales
literature to persons other than current shareholders of
the Fund; and
(e) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and other
financial institutions (other than Prusec) which have
entered into selected dealer agreements with the
Distributor with respect to shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors or Trustees of the Fund for review, at least
quarterly, a written report specifying in reasonable detail the
amounts expended for Distribution Activities (including payment of
the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
3
<PAGE>
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 or Trustees
of the Fund of the commissions and account servicing fees to be
paid by the Distributor to account executives of the Distributor
and to broker-dealers and other financial institutions which have
selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the
Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, the Plan shall,
unless earlier terminated in accordance with its terms, continue in
full force and effect thereafter for so long as such
continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a
majority of the Rule 12b-1 Directors or Trustees by votes cast in
person at a meeting called for the purpose of voting on the
continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors or Trustees, or by vote of a majority
of the outstanding voting securities (as defined in the Investment
4
<PAGE>
Company Act) of the Class C shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3
hereof so as to increase materially the amounts payable under this
Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of
the Board of Directors or Trustees of the Fund and a majority of
the Rule 12b-1 Directors or Trustees by votes cast in person at a
meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors or Trustees
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors or Trustees shall be committed to the
discretion of the Rule 12b-1 Directors or Trustees.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
*[10. Enforcement of Claims.
The name "Prudential ___________ Trust" is the designation of
the Trustees under a Declaration of Trust dated ______, 19__ and
all persons dealing with the Fund must look solely to the property
5
<PAGE>
of the Fund for the enforcement of any claims against the Fund, and
neither the Trustees, officers, agents of shareholders assume any
personal liability for obligations entered into on behalf of the
Fund.]
Dated:
[mc]clb-comp.pln
