As filed with the Securities and Exchange Commission
on March 2, 1994
Registration No. 2-72097
================================================================================
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. 18 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 19 /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):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 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 intends to file a notice under such
Rule for its fiscal year ended December 31, 1993 on or before February 28, 1994.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
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<S> <C>
Part A
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, Manager
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
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
</TABLE>
<PAGE>
Prudential Utility Fund
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Prospectus dated February 28, 1994
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Prudential-Bache Utility Fund, Inc., doing business as Prudential Utility Fund
(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, principally electric, gas and telephone companies. In normal
circumstances, the Fund intends to invest at least 80% of its assets in such
securities. 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.
The Fund may write and purchase options on stock and stock indices. Short- term
trading may result in a high turnover rate. 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."
- --------------------------------------------------------------------------------
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 February 28, 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?
Prudential Utility Fund 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, principally electric, gas
and telephone 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 invest up to 30% of its total assets in the securities of
foreign issuers, which may be subject to special risks. See "How the Fund
Invests-Other Investments and Policies" at page 7. The Fund may also engage in
hedging and income enhancement strategies, including the purchase and sale of
put and call options on stocks and on stock indices relating to the utility
industry and related short-term trading. See "How the Fund Invests" at page 7.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .60 of 1%
of the Fund's average daily net assets up to and including $250 million, .50 of
1% of the next $500 million, .45 of 1% of the next $750 million, .40 of 1% of
the next $500 million, and .35 of 1% of the excess over $2 billion of the Fund's
average daily net assets. The Board of Directors of the Fund has approved a
reduction of the management fee effective October 1, 1993 which is being
presented to shareholders for their consideration at a special meeting of
shareholders to be held in 1994. The Manager has agreed, until such reduction is
approved by shareholders, 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
would be 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. As of January 31, 1994, PMF served as manager or administrator to 66
investment companies, including 37 mutual funds, with aggregate assets of
approximately $51 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 9.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares. The Fund currently reimburses PMFD for expenses
related to the distribution of Class A shares at an annual rate of up to .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 shares. Prudential Securities is reimbursed
for its expenses related to the distribution of Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares. See "How the
Fund is Managed-Distributor" at page 10.
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2
<PAGE>
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WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000. The minimum subsequent investment
is $100. 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 15 and "Shareholder Guide-Shareholder Services" at
page 22.
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 at the time of purchase or on a deferred basis. See "How
the Fund Values Its Shares" at page 12 and "Shareholder Guide-How to Buy Shares
of the Fund" at page 15.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers two classes of shares which may be purchased at the next
determined NAV plus a sales charge which, at your election, may be imposed
either at the time of purchase (Class A shares) or on a deferred basis (Class B
shares).
o Class A shares are sold with an initial sales charge of up to 5.25% of
the offering price.
o Class B shares are 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.
You should understand that over time the deferred sales charge plus
distribution fee of the Class B shares will exceed the initial sales charge plus
the distribution fee of the Class A shares.
See "Shareholder Guide-Alternative Purchase Plan" at page 16.
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. Although
Class B shares are sold without an initial sales charge, the proceeds from
redemptions of Class B shares held for six years or less may be subject to a
contingent deferred sales charge declining from 5% to zero. See "Shareholder
Guide-How to Sell Your Shares" at page 18.
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 13.
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3
<PAGE>
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FUND EXPENSES
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<TABLE>
<CAPTION>
Class A Shares Class B Shares
(Initial Sales Charge (Deferred Sales Charge
SHAREHOLDER TRANSACTION EXPENSES+ Alternative) Alternative)
-------------------- ----------------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ........... 5.25% None
Maximum Sales Load or Deferred Sales Load Imposed
on Reinvested Dividends ....................... None None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds,
whichever is lower) ........................... None 5% during the first
year, decreasing by 1%
annually to 1% in the
fifth and sixth years
and 0% the seventh year
and thereafter
Redemption Fees ................................. None None
Exchange Fees ................................... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) Class A Class B
------- -------
Management Fees ................................. .40% .40%
12b-1 Fees+ ..................................... .25++ 1.00
Other Expenses .................................. .20 .20
--- ----
Total Fund Operating Expenses ................... .85% 1.60%
=== ====
<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 .............................................. $ 61 $ 78 $ 97 $152
Class B .............................................. $ 66 $ 80 $ 97 $190
You would pay the following expenses on the same investment,
assuming no redemption:
Class A .............................................. $ 61 $ 78 $ 97 $152
Class B .............................................. $ 16 $ 50 $ 87 $190
</TABLE>
The above example is based on restated data for the Fund's 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.
- -------------
+ 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 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."
++ 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 asset value of the Class A shares
for the year ending December 31, 1994. See "How the Fund Is
Managed-Distributor."
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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)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
January 22,
1990++
Year Ended December 31, through
----------------------- December 31,
1993 1992 1991 1990
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:*
Net asset value, beginning of period ................... $8.97 $8.72 $7.63 $8.78
----- ----- ----- -----
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 (.51)
---- --- ---- ----
Total from investment operations ............. 1.45 .83 1.49 (.15)
---- --- ---- ----
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# .......................................... 16.28% 9.88% 19.95% (1.53)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000) .................... $ 337 $201 $ 111 $ 73
Average net assets (000,000) ........................... $ 287 $149 $ 85 $ 51
Ratios to average net assets:
Expenses, including distribution fees ................ .80% .81% .87% .97%+
Expenses, excluding distribution fees ................ .60% .61% .67% .77%+
Net investment income ................................ 3.16% 4.14% 4.69% 4.78%+
Portfolio turnover rate ................................ 24% 24% 38% 53%
- --------------
<FN>
* Restated to reflect 2 for 1 stock split paid July 6, 1993 to shareholders
of record July 2, 1993.
+ 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 returns for periods of less than one full year are not
annualized.
</FN>
</TABLE>
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5
<PAGE>
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FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class B Shares)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989** 1988(b) 1987 1986 1985 1984(a)+
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:*
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)## (.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# .................... 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% 1.63% 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.
+ Restated to reflect 2 for 1 stock split paid to shareholders of record
November 19, 1984.
# 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.
## 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.
</FN>
</TABLE>
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6
<PAGE>
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HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
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, PRINCIPALLY ELECTRIC, GAS AND TELEPHONE COMPANIES. IN NORMAL
CIRCUMSTANCES, THE FUND INTENDS TO INVEST AT LEAST 80% OF ITS ASSETS IN SUCH
SECURITIES. THERE CAN BE NO ASSURANCE THAT SUCH OBJECTIVE WILL BE ACHIEVED. It
is anticipated that the Fund will invest primarily in utility common stocks that
have a high expected return; however, the Fund may invest primarily in utility
preferred stocks and debt securities when it appears that the Fund will be
better able to achieve its investment objective through investments in such
securities, or when the Fund is temporarily in a defensive position. Moreover,
should extraordinary conditions affecting the utility sector or securities
markets as a whole warrant, the Fund may temporarily be primarily invested in
money market instruments. The Directors of the Fund have recommended, subject to
shareholder approval, modifications of this objective to expand the universe of
the type of utility companies into which the Fund may invest. There can be no
assurance that these modifications will be approved.
THE FUND MAY INVEST UP TO 30% OF ITS TOTAL ASSETS IN SECURITIES OF FOREIGN
ISSUERS, WHICH MAY INVOLVE ADDITIONAL RISKS. See "Other Investments and
Policies-Foreign Securities" below. The Fund may also invest in American
Depository Receipts, which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. American Depository Receipts are not considered foreign securities for
purposes of the 30% limitation.
IN SEEKING TO ACHIEVE ITS INVESTMENT OBJECTIVE, THE FUND INTENDS TO HEDGE
ITS PORTFOLIO AND TO ENHANCE ITS RETURN THROUGH INVESTMENTS IN OPTIONS ON STOCKS
AND ON STOCK INDICES RELATING TO THE UTILITY INDUSTRY, AND TO ENTER INTO
REPURCHASE AGREEMENTS. See "Investment Objective and Policies" in the Statement
of Additional Information.
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.
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
7
<PAGE>
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 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 repurchase date is usually within a day or two
of the original purchase, 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.
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 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.
8
<PAGE>
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."
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 AND .35 OF 1%
OF THE EXCESS OVER $2 BILLION OF THE FUND'S AVERAGE DAILY NET ASSETS. The Board
of Directors of the Fund has approved a reduction of the management fee
effective October 1, 1993 which is being presented to shareholders for their
consideration at a special meeting of shareholders to be held in 1994. The
Manager has agreed, until such reduction is approved by shareholders, 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 would be 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. There can be no assurance
that the reduction in management fees will be approved by shareholders. 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 January 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 $51 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.
The current portfolio manager of the Fund is Warren E. Spitz, a Managing
Director of Prudential Investment Advisors, a unit of The Prudential Investment
Corporation (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 in the Southern District of
New York agianst the Fund, PMF, Prudential Investment Corporation, Prudential
Securities, and certain current and former directors of the Fund. The suit was
9
<PAGE>
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 im plemented 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
SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN AND THE
CLASS B PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER RULE 12B-1
UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS (THE
DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A AND CLASS B
SHARES, RESPECTIVELY. 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, interest and/or carrying charges (Class B only), 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 CLASS A PLAN, THE FUND REIMBURSES PMFD FOR ITS DISTRIBUTION-
RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30
OF 1% OF THE AVERAGE DAILY NET 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. It is expected that in the case of Class
A shares, proceeds from the distribution fee will be used primarily to pay
account servicing fees to financial advisers. Unlike the Class B Plan, there are
no carry forward amounts under the Class A Plan, and interest expenses are not
incurred under the Class A Plan. PMFD has advised the Fund that distribution-
related expenses under the Class A Plan will not exceed .25 of 1% of the average
daily net assets of the Class A shares for the fiscal year ending December 31,
1994.
For the fiscal year ended December 31, 1993, PMFD incurred distribution
expenses under the Class A Plan of $573,660, all of which was recovered through
the distribution fee paid by the Fund to PMFD. In addition, for this period,
PMFD received approximately $5,755,000 in initial sales charges from Class A
shareholders of the Fund.
UNDER THE CLASS B PLAN, THE FUND REIMBURSES PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B SHARES (ASSET- BASED SALES
CHARGES) AT AN ANNUAL RATE OF UP TO .75% OF THE AVERAGE DAILY NET ASSETS OF THE
CLASS B SHARES. Prudential Securities recovers the distribution expenses it
incurs through the receipt of reimbursement payments from the Fund under the
Class B Plan and the receipt of contingent deferred sales charges from certain
redeeming shareholders. See "Shareholder Guide-How to Sell Your
Shares-Contingent Deferred Sales Charge-Class B Shares." For the year ended
December 31, 1993, Prudential Securities received approximately $4,330,000 in
contingent deferred sales charges.
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<PAGE>
THE CLASS B PLAN ALSO PROVIDES FOR THE PAYMENT OF A SERVICE FEE TO
PRUDENTIAL SECURITIES AT A RATE NOT TO EXCEED .25 OF 1% OF THE AVERAGE DAILY NET
ASSET VALUE OF THE CLASS B SHARES. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts.
Actual distribution expenses (asset-based sales charges) for Class B shares
for any given year may exceed the fees received pursuant to the Class B Plan and
will be carried forward and paid by the Fund in future years so long as the
Class B Plan is in effect. Interest is accrued monthly on such carry forward
amounts at a rate comparable to that paid by Prudential Securities for bank
borrowings. See "Distributor" in the Statement of Additional Information.
THE AGGREGATE DISTRIBUTION FEE FOR CLASS B SHARES (ASSET-BASED SALES
CHARGES PLUS SERVICE FEES) WILL NOT EXCEED THE ANNUAL RATE OF 1% OF THE AVERAGE
DAILY NET ASSET VALUE OF THE CLASS B SHARES UNDER THE CLASS B PLAN.
For the fiscal year ended December 31, 1993, the Distributor received a
distribution fee of $43,080,963 from the Fund under the Class B Plan. It is
estimated that the Distributor incurred aggregate distribution expenses under
the Class B Plan of approximately $60,566,900 during such period. At December
31, 1993, the aggregate amount of distribution expenses incurred by the
Distributor and not yet reimbursed by the Fund or recovered through contingent
deferred sales charges was approximately $43,949,000, or .9% of the net assets
of the Class B shares. These unreimbursed amounts may be recovered by Prudential
Securities through future payments under the Class B Plan or through contingent
deferred sales charges.
For the year ended December 31, 1993, the Fund paid distribution expenses
of .20% and 1.00% of the average net asset value 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.
Distribution expenses attributable to the sale of both Class A and Class B
shares will be allocated to each class based upon the ratio of sales of each
class to the sales of all shares of the Fund. The distribution fee and initial
sales charge in the case of Class A shares will not be used to subsidize the
sale of Class B shares. Similarly, the distribution fee and contingent deferred
sales charge in the case of Class B shares will not be used to subsidize the
sale of Class A shares.
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.
In the event of termination or noncontinuation of the Class B Plan, the Board of
Directors may consider the appropriateness of having the Fund reimburse
Prudential Securities for the outstanding carry forward amounts plus interest
thereon.
In addition to distribution and service fees paid by the Fund under the
Class A and Class B 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 also act as a broker for the Fund, provided that
the commissions, fees or other remuneration it receives are fair and reasonable.
See "Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
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<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.
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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 Class A and Class B 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 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 shares are subject. It is expected,
however, that the NAV per share of the two 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 between 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 AND CLASS B 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 performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any federal
or state income taxes which may be payable upon redemption. The Fund also may
12
<PAGE>
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. The "yield" refers to the income generated by an investment
in the Fund over a 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. See "Performance
Information" in the Statement of Additional Information. The Fund will include
performance data for both Class A and Class B 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 report 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 QUALIFIED 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 long term capital gains 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.
13
<PAGE>
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund generally 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). Dividends of net
investment income and net short-term capital gains paid to a foreign shareholder
will generally be subject to a 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 QUARTERLY AND
MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET CAPITAL GAINS. Dividends paid by
the Fund with respect to Class A and Class B 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-related expenses, resulting in lower dividends for Class B shares.
Distributions of net capital gains, if any, will be paid in the same amount for
Class A and Class B shares. See "How the Fund Values Its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV 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 receive a return of capital in respect of such year and, in an annual
statement, will be notified of the amount of any return of capital for such
year. 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," ITS NAV IS REDUCED BY THE AMOUNT OF THE
DIVIDEND OR DISTRIBUTION. IF YOU BUY SHARES JUST PRIOR TO THE EX- DIVIDEND 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,
CONSISTING, IN PART, OF 566,666,666 SHARES OF CLASS A AND 866,666,667 SHARES OF
CLASS B COMMON STOCK. Both Class A and Class B common stock represent an
interest in the same assets of the Fund and are identical in all respects except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. See "How the Fund is
Managed-Distributor." The Fund has received an order from the Commission
14
<PAGE>
permitting the issuance and sale of multiple classes of common stock. Currently,
the Fund is offering only two classes designated as Class A and Class B 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 Class A and Class B 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. 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 shares bear higher
distribution expenses, the liquidation proceeds to Class B shareholders are
likely to be lower than to Class A shareholders. The Fund's shares do not have
cumulative voting rights for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. 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). The minimum initial investment is
$1,000. The minimum subsequent investment is $100. 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.
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 AT THE TIME OF PURCHASE OR ON A DEFERRED
BASIS. 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.
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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 made through dealers other than Prudential
Securities or Prusec may be subject to postage and handling charges imposed by
the dealer; however, you may avoid such charges by placing orders directly with
the Fund's Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020.
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, specifying on the wire the account
number assigned by PMFS and your name and identifying the sales charge
alternative (Class A or Class B 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,
Class A or Class B 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 TWO CLASSES OF SHARES WHICH ALLOWS YOU TO CHOOSE THE MOST
BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES, GIVEN THE
AMOUNT OF THE PURCHASE AND THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND
OTHER RELEVANT CIRCUMSTANCES. You may purchase shares at the next determined NAV
plus a sales charge which, at your election, may be imposed either at the time
of purchase (the Class A shares or the initial sales charge alternative) or on a
deferred basis (the Class B shares or the deferred sales charge alternative)
(the Alternative Purchase Plan).
CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE OF UP TO 5.25% OF THE
OFFERING PRICE AND AN ANNUAL DISTRIBUTION FEE WHICH IS CURRENTLY BEING CHARGED
AT A RATE OF UP TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A
SHARES. Certain purchases of Class A shares may qualify for reduction or waiver
of initial sales charges. See "Initial Sales Charge Alternative-Class A
Shares-Reduction or Waiver of Initial Sales Charges" below.
CLASS B SHARES DO NOT INCUR A SALES CHARGE WHEN THEY ARE PURCHASED BUT ARE
SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE (DECLINING FROM 5% TO ZERO OF THE
LESSER OF THE AMOUNT INVESTED OR THE REDEMPTION PROCEEDS), WHICH WILL BE IMPOSED
ON CERTAIN REDEMPTIONS MADE WITHIN SIX YEARS OF PURCHASE AND AN ANNUAL
DISTRIBUTION FEE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS B
SHARES. Certain redemptions of Class B shares may qualify for waiver or
reduction of the contingent deferred sales charge. See "How to Sell Your
Shares-Waiver of Contingent Deferred Sales Charge" and "How To Sell Your
Shares-Quantity Discount."
The two classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that each class bears
the separate expenses of its Rule 12b-1 distribution plan and has exclusive
voting rights with respect to such plan. The two classes also have separate
exchange privileges. See "How to Exchange Your Shares" below. The net 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
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<PAGE>
shares bear the expenses of a higher distribution fee which will cause the Class
B shares to have a higher expense ratio and to pay lower dividends than the
Class A shares.
Financial advisers will receive different compensation for selling Class A
and Class B shares.
The following illustrations are provided to assist you in determining which
method of purchase best suits your individual circumstances:
If you qualify for a reduced sales charge, you might elect the initial
sales charge alternative because a similar sales charge reduction is not
available for purchases under the deferred sales charge alternative. However,
because the initial sales charge is deducted at the time of purchase, you would
not have all of your money invested initially.
If you do not qualify for a reduced initial sales charge and expect to
maintain your investment in the Fund for a long period of time, you might also
elect the initial sales charge alternative because over time the accumulated
continuing distribution charges of Class B shares will exceed the initial sales
charge plus distribution fees of Class A shares. Again, however, you must weigh
this consideration against the fact that not all of your money will be invested
initially. Furthermore, the ongoing distribution charges under the deferred
sales charge alternative will be offset to the extent any return is realized on
the additional funds. However, there can be no assurance that any return will be
realized on the additional funds.
On the other hand, you might determine that it is more advantageous to have
all of your money invested initially, although it is subject to a distribution
fee of up to 1% and, for a six-year period, a contingent deferred sales charge.
For example, based on current fees and expenses, if you purchase Class A Shares
you would have to hold your investment more than 7 years for the 1% Class B
distribution fee to exceed the initial sales charge plus account servicing fee
of Class A shares. In this example if you intend to maintain your investment for
more than 7 years, you should consider purchasing Class A shares. However, this
example does not take into account the time value of money which further reduces
the impact of the 1% distribution fee on the investment, fluctuations in net
asset value, the effect of the return on the investment over this period of time
or redemptions while the contingent deferred sales charge is applicable.
INITIAL SALES CHARGE ALTERNATIVE-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:
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 ............. 5.25% 5.54% 5.00%
$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 .......... 3.50% 3.63% 3.25%
$250,000 to $499,999 .......... 3.00% 3.09% 2.90%
$500,000 to $999,999 .......... 2.00% 2.04% 1.90%
$1,000,000 to $2,499,999 ...... 1.00% 1.01% 0.95%
$2,500,000 and above .......... 0.50% 0.50% 0.45%
Selling dealers may be deemed to be underwriters, as that term is defined
under federal securities laws.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Sales charges are reduced
under Rights of Accumulation and Letters of Intent. Class A shares are offered
at NAV to participants in certain retirement and deferred compensation plans,
including qualified or non-qualified plans under the Internal Revenue Code and
certain affinity group and group savings plans, provided that the plan has
existing assets of at least $10 million or 2,500 eligible employees or members.
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Additional information concerning the reduction and waiver of initial sales
charges is set forth in the Statement of Additional Information. In the case of
pension, profit-sharing or stock bonus plans 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) 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 are offered at NAV to participants who are repaying loans
made from such plans to the participant.
Class A shares are offered at NAV to Directors and officers of the Fund and
other Prudential Mutual Funds, to employees of Prudential Securities and PMF and
their subsidiaries and to members of the families of such persons who maintain
an "employee related" account at Prudential Securities or the Transfer Agent.
Class A shares are offered at NAV to employees and special agents of Prudential
and its subsidiaries and to all persons who have retired directly from active
service with Prudential or one of its subsidiaries.
Class A shares are offered at NAV to an investor who has 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 investment company sponsored by the financial adviser's previous
employer (other than a money market fund or other no-load 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 purchase.
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.
DEFERRED SALES CHARGE ALTERNATIVE-CLASS B SHARES
The offering price of Class B shares for investors choosing the deferred
sales charge alternative 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 shares may
be subject to a contingent deferred sales charge. See "How to Sell Your
Shares-Contingent Deferred Sales Charge-Class B Shares."
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 from the Class B shares will be
reduced by the amount of any applicable contingent deferred sales charge, as
described below. See "Contingent Deferred Sales Charge- Class B Shares" 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
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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 Prudential Preferred Financial 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 prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any involuntary redemption.
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 Class B 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.
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<PAGE>
CONTINGENT DEFERRED SALES CHARGE-CLASS B SHARES
If you have elected to purchase shares without an initial sales charge
(Class B), a contingent deferred sales charge or CDSC (declining from 5% to
zero) will be imposed at the time of redemption. 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
shares of the Fund to an amount which is lower than the amount of all payments
by you for the purchase of Class B shares during the preceding six years. 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 Charge" 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 Class B 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:
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 and thereafter ......................... None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of Fund shares made during the preceding six
years (five years for 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 six-year period (five years for
shares purchased prior to January 22, 1990).
For example, assume you purchased 100 shares at $10 per share for a cost of
$1,000. Subsequently, you acquired 5 additional 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 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. 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
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<PAGE>
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), or a trust, at the time of death or initial determination of
disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include a lump-sum or other distribution
after retirement, or for an IRA or Section 403(b) 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. 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.
QUANTITY DISCOUNT. The CDSC is reduced on redemptions of Class B shares of
the Fund 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 exceeds
$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 is $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 cost exceeds $500,000 or $1 million:
Contingent Deferred Sales Charge as
a Percentage of Dollars
Invested or Redemption Proceeds
-----------------------------------
Year Since Purchase $500,001 to Over
Payment Made $1 million $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.
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 AND CLASS B SHARES MAY BE EXCHANGED FOR CLASS A AND CLASS B
SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. Any
applicable CDSC payable upon the redemption of shares exchanged will be that
imposed by the fund in which shares were initially purchased and will be
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<PAGE>
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 shares may not be
exchanged into money market funds other than Prudential Special Money Market
Fund. 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. 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.
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.
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 sixty
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:
o 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.
o 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.
o 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.
22
<PAGE>
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.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available for
shareholders having Class A or Class B shares of the Fund. Such withdrawal plan
provides for monthly or quarterly checks. Withdrawals of Class B shares may be
subject to a CDSC. See "How to Sell Your Shares- Contingent Deferred Sales
Charge-Class B Shares" above. See also "Shareholder Investment
Account-Systematic Withdrawal Plan" in the Statement of Additional Information.
o 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.
o 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.
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- --------------------------------------------------------------------------------
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
Prudential Government Plus Fund
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund
Prudential Structured Maturity Fund
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
-------------------------------
Global Funds
-------------------------------
Prudential Global Fund, Inc.
Prudential Global Genesis Fund
Prudential Global Natural Resources Fund
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 Equity Fund, Inc.
Prudential Equity Income Fund
Prudential FlexiFund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
-------------------------------
Money Market Funds
-------------------------------
o 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
o 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
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o 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 and 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
Other Investments and Policies............. 7
Investment Restrictions.................... 9
HOW THE FUND IS MANAGED...................... 9
Manager.................................... 9
Distributor................................ 10
Portfolio Transactions..................... 11
Custodian and Transfer and
Dividend Disbursing Agent................ 12
HOW THE FUND VALUES ITS SHARES............... 12
HOW THE FUND CALCULATES PERFORMANCE.......... 12
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 13
GENERAL INFORMATION.......................... 14
Description of Common Stock................ 14
Additional Information..................... 15
SHAREHOLDER GUIDE............................ 15
How to Buy Shares of the Fund.............. 15
Alternative Purchase Plan.................. 16
How to Sell Your Shares.................... 18
How to Exchange Your Shares................ 21
Shareholder Services....................... 22
THE PRUDENTIAL MUTUAL FUND FAMILY............ A-1
________________________________________________
105A 440133P
________________________________________________
CUSIP Nos.: Class A: 743911-20-8
Class B: 743911-10-9
________________________________________________
Prudential
Utility
Fund
-------------
P
R
O
S
P
E
C
T
U
S
February 28, 1994
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
<PAGE>
PRUDENTIAL UTILITY FUND
Statement of Additional Information
February 28, 1994
Prudential-Bache Utility Fund, Inc., doing business as Prudential Utility
Fund (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, principally electric, gas and telephone companies. In normal
circumstances, the Fund intends to invest at least 80% of its assets in such
securities. See "Investment Objective and Policies."
The Fund offers two classes of shares which may be purchased at the next
determined net asset value per share plus a sales charge which, at the election
of the investor, may be imposed (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B shares). These alternatives permit an investor
to choose the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances.
Each share of Class A and Class B common stock represents an identical legal
interest in the investment portfolio of the Fund and has the same rights, except
that the Class B shares bear the expenses of a higher distribution fee which
will cause the Class B shares to have a higher expense ratio and to pay lower
dividends than the Class A shares. Each class will have exclusive voting rights
with respect to its distribution plan. Although the legal rights of holders of
Class A and Class B shares are identical, the different expenses borne by each
class will result in different net asset values and dividends. The two classes
also have different exchange privileges.
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated February 28, 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 14
Investment Objective and Policies .......... B-2 7
Investment Restrictions .................... B-6 9
Directors and Officers ..................... B-7 9
Manager .................................... B-9 9
Distributor ................................ B-11 10
Portfolio Transactions and Brokerage ....... B-12 11
Purchase and Redemption of Fund Shares ..... B-14 15
Shareholder Investment Account ............. B-15 15
Net Asset Value ............................ B-18 12
Taxes ...................................... B-19 13
Performance Information .................... B-20 12
Custodian and Transfer and Dividend
Disbursing Agent and Independent
Accountants .............................. B-21 12
Financial Statements ....................... B-22 -
Report of Independent Accountants .......... B-32 -
- --------------------------------------------------------------------------------
MF105B
<PAGE>
GENERAL INFORMATION
On August 24, 1984, the shareholders of the Fund at the Annual Meeting of
Shareholders approved an amendment to the Fund's Articles of Incorporation, as
recommended by the Board of Directors, to change the Fund's name to
Prudential-Bache Utility Fund, Inc. from Prudential-Bache Tax-Managed Utility
Fund, Inc. On September 22, 1983, the shareholders of the Fund at the Annual
Meeting of Shareholders approved an amendment to the Fund's Articles of
Incorporation, as recommended by the Board of Directors, to change the Fund's
name to Prudential-Bache Tax-Managed Utility Fund, Inc. from Chancellor Tax-
Managed Utility Fund, Inc.
On March 15, 1991, the Board of Directors approved an amendment to the
Fund's Articles of Incorporation to change the Fund's name to Prudential Utility
Fund, Inc. and authorized the Fund to do business under the name of Prudential
Utility Fund until the next annual or special meeting of shareholders at which
time the amendment will be submitted to shareholders for their approval.
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, principally electric, gas and telephone companies. In normal
circumstances, the Fund intends to invest at least 80% of its assets in such
securities. It is anticipated that the Fund will invest primarily in utility
common stocks that have a high expected return; however, the Fund may invest
primarily in utility preferred stocks and debt securities when it appears that
the Fund will be better able to achieve its investment objective through
investments in such securities, or when the Fund is temporarily in a defensive
position. Moreover, should extraordinary conditions affecting the utility sector
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.
Options on Stocks
The Fund may purchase and write (i.e., sell) put and call options on stocks
and, as described below, on stock indices, that are listed on a U.S. or foreign
securities exchange. A call option is a short-term contract (having a duration
of nine months or less) pursuant to which the purchaser of the call option, in
return for a premium paid, has the right to buy the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium, has the obligation,
upon exercise of the option, to deliver the underlying security against payment
of the exercise price during the option period. A put option is a similar
contract which gives the purchaser of the put option, in return for a premium,
the right to sell the underlying security at a specified price during the term
of the option. The writer of the put, who receives the premium, has the
obligation to buy the underlying security, upon exercise, at the exercise price
during the option period. All call options written by the Fund must be "covered"
so long as the Fund remains obligated as a writer. A call option is covered if
the Fund either (i) owns the underlying security covered by the call or has an
absolute and immediate right to acquire that security without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio or (ii) holds on a share-for-share basis a call on the same security
as the call written where the exercise price of the call held is equal to or
less than the exercise price of the call written. As long as the Fund remains
obligated as the writer of a put, the Fund will maintain with its Custodian
cash, Treasury bills or other high grade short-term obligations, or short-term
U.S. Government securities equal in value to the amount it will be obligated to
pay upon exercise of the put or else will hold on a share-for-share basis a put
on the same security as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written.
The premium paid by the purchaser 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.
If the Fund has written an option and wishes to terminate its obligation, it
may effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the Fund's position as a writer will be cancelled by The
Options Clearing Corporation. However, the Fund may not effect a closing
purchase transaction after it has been notified of the exercise of an option. If
the Fund wishes to sell a security on which a call has been written, it will
effect a closing purchase transaction simultaneously with or before selling the
security. There is no guarantee that a closing purchase transaction can be
effected.
The Fund intends to write covered calls on its portfolio securities in order
to attempt to increase the return on its portfolio. The Fund may write a call on
a security when the investment adviser believes that the return from writing the
call plus the appreciation in the price of the security up to the exercise price
B-2
<PAGE>
will be greater than the anticipated appreciation in the price of the security
alone. The Fund may write a call that is covered by another call purchased by
the Fund as a substitute for the purchase of stock and the writing of calls on
such stock.
The Fund may purchase calls on securities that the investment adviser wishes
to include in the Fund's portfolio in order to fix the cost of the future
purchase of the underlying security. A call may also be purchased instead of the
underlying security when, for example, the investment adviser believes that the
payment of the applicable premium is desirable in light of prevailing interest
rates or for other reasons. If the market price of the security upon which a
call has been purchased by the Fund does not exceed the exercise price during
the life of the call, and the call is not sold while it has remaining value, the
Fund may lose its entire investment in the call.
The Fund may write puts when it wishes to invest in a security at a price
lower than the current market price. In such a situation, the Fund may write a
put on a security at an exercise price which, giving effect to the premium, is
the price it would be willing to pay for the underlying security.
The Fund may buy puts on securities that the Fund owns in order to protect
the Fund from a potential decline in the value of the underlying securities. If
the market price of the underlying security upon which a put has been purchased
by the Fund remains equal to or greater than the exercise price during the life
of the put, and the put is not sold when it has remaining value, the Fund will
lose its entire investment in the put.
Writing a call may result in a loss equal to the difference between the
market price of the underlying security at exercise and the sum of the exercise
price of the call plus the premium received from the sale of the call. After
writing a put, the Fund may incur a loss equal to the difference between the
exercise price of the put and the sum of the market price of the underlying
security at exercise plus the premium received from the sale of the put.
The Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option; however, any loss so incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different call or put option. Also, because
increases in the market price of a call will generally reflect increases in the
market price of the underlying security, any loss resulting from a closing
purchase transaction is likely to be offset in whole or in part by appreciation
of the underlying security owned by the Fund.
Options on Stock Indices
The Fund may also purchase and write options on stock indices relating to
the utility industry and segments thereof. Options on stock indices, including
options on indices relating to the utility industry, are similar to options on
stock except that, rather than giving the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to the difference between the closing price
of the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the multiplier). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike stock
options, all settlements are in cash and gain or loss depends on price movements
in the stock market generally (or in a particular segment of the market) rather
than price movements in individual stocks.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
As an example of a transaction involving stock index options, assume that a
holder of a call on the XYZ Index with an exercise price of $80 chooses to
exercise it on a date when the index closes at $85. If the multiplier for
options on the XYZ Index is 100, the assigned writer would be obligated to pay,
and the exercising holder would be entitled to receive, $500 in cash (($85-$80)
x 100=$500).
The Fund's use of options on indices relating to the utility industry will
be subject to risks, some of which differ from the risks attendant to comparable
uses of stock options as described above. Since the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the utility industry rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on indices
would be subject to the investment adviser's ability to correctly predict
movements in the level of prices of the stocks of the utility companies
comprising the index. This requires skills and techniques that are different
than those required for predicting changes in the price of individual stocks.
B-3
<PAGE>
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. In addition, trading in options on an index may be
interrupted in certain circumstances, such as if trading were halted in a
substantial number of stocks 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, might be unable to exercise an option it
holds, which could result in substantial losses to the Fund. However, it would
be the Fund's policy to purchase or write options only on utility industry
indices which include a sufficient number of stocks so that the likelihood of a
trading halt in the index is minimized.
Because exercises of indexed options are settled in cash, a call writer
such as the Fund cannot determine the amount of its settlement obligation in
advance and, unlike call writing on specific stocks, cannot provide in advance
for, or cover, its potential settlement obligation by acquiring and holding the
underlying securities. However, 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 stock index relating to the
utility industry, the Fund will segregate or put into escrow with its Custodian,
or pledge to a broker as collateral for the option, at least ten "qualified
securities," all of which are stocks of issuers in that portion of the utility
industry covered by the index, with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. Such stocks will include stocks which represent
at least 25% of the weighing of the utility industry index. No individual
security will represent more than 20% of the amount so segregated, escrowed or
pledged. 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. 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 above requirements. A "qualified security" is an equity
security which is listed on a U.S. or foreign securities exchange or listed on
the National Association of Securities Dealers Automated Quotation System
against which the Fund has not written a stock call option.
Price movements in the Fund's portfolio will not correlate perfectly with
movements in the level of the 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 of stocks does not
rise or when it falls. 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.
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 (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 learns that a call it has written was
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 stocks in
its portfolio. As with stock options, the Fund will not learn that a call it has
written 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 stock portfolio
in order to make settlement in cash, and the price of such stocks 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
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 day the exercise notice is filed with the clearing corporation
and the close of trading on the day when the Fund exercises the call it holds or
the time when the Fund sells the call, which in either case would occur no
earlier than the day following the day on which the exercise notice was filed.
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 multiplier) 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.
B-4
<PAGE>
The Fund will write call options on indices only if the amount resulting
from the multiplication of the then current level of the index (or indices) upon
which the option is based, the applicable multiplier(s), and the number of
options contracts which would be outstanding, would not exceed one-third of the
value of the Fund's net assets and, together with call options written on
stocks, would not exceed 50% of the Fund's net assets.
The Fund has undertaken with certain state securities commissions that, as
long as its shares 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
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.
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).
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',
B-5
<PAGE>
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.
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).
3. Make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 25% of the Fund's
net assets (taken at current value) is held as collateral for such sales at any
one time.
4. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to 20% of the value of its total assets (calculated when
the loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. For purposes of this restriction,
obligations of the Fund to Directors pursuant to deferred compensation
arrangements, the purchase and sale of securities on a when-issued or delayed
delivery basis, the purchase and sale of options and collateral arrangements
with respect to the purchase and sale of options are not deemed to be the
issuance of a senior security or the pledge of assets.
5. Purchase any security if as a result the Fund would then hold more than
10% of any class of securities of an issuer (taking all common stock issues of
an issuer as a single class, all preferred stock issues as a single class, and
all debt issues as a single class) or more than 10% of the outstanding voting
securities of an issuer.
6. Purchase any security if as a result the Fund would then have more than
5% of its total assets (taken at current value) invested in securities of
companies (including predecessors) less than three years old or in equity
securities for which market quotations are not readily available.
7. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or director of the Fund or of the Manager owns more than 1/2 of 1% of
the outstanding securities of such issuer, and such officers and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer.
8. Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, although it may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate.
9. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
10. Make investments for the purpose of exercising control or management.
11. Purchase any security restricted as to disposition under federal
securities laws.
12. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which not more than 5% of its total assets (taken at current value)
would be invested in such securities, or except as part of a merger,
consolidation or other acquisition.
13. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs.
14. Make loans, except through (i) the purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of indebtedness of a
type commonly sold privately to financial institutions (subject to the
limitation in paragraph 11 above), (ii) the lending of its portfolio securities,
B-6
<PAGE>
as described under "Investment Objective and Policies-Lending of Securities" and
(iii) repurchase agreements (repurchase agreements with a maturity of longer
than 7 days together with other illiquid assets being limited to 10% of the
Fund's total assets). (The purchase of a portion of an issue of securities
described under (i) above distributed publicly, whether or not the purchase is
made on the original issuance, is not considered the making of a loan.)
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; and (5) 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.
The Directors of the Fund have recommended, subject to shareholder approval,
(i) deletion of the Fund's Investment Restriction Number 7, which prohibits the
purchase of any security of an issuer if officers and Directors of the Fund or
the Manager or Subadviser in the aggregate own more than 5% of the outstanding
securities of such issuer and replacement of such restriction with a
non-fundamental policy, (ii) modification of Investment Restriction Number 5 to
delete that portion of the restriction which prohibits the Fund from purchasing
a security if it would then hold more than 10% of any class of securities of
such issuer, (iii) deletion of the Fund's Investment Restriction Number 11 and
modification of the Fund's Investment Restriction Numbers 6 and 14 relating to
illiquid securities (these fundamental policies would be replaced with a
non-fundamental policy which permits the Fund to invest up to 10% of its net
assets in illiquid securities), (iv) modification of the Fund's investment
objective to expand the types of utility companies in which the Fund invests at
least 80% of its assets beyond electric, gas and telephone companies to include
gas pipeline, telecommunications, water and cable companies, (v) to permit the
Fund to purchase and sell futures contracts and related options, (vi) to permit
the Fund to engage in forward foreign currency exchange contracts (forward
contracts) and options on foreign currencies and (vii) to clarify that the
Fund's purchase and sales of forward contracts and collateral arrangements with
respect to futures contracts and related options and forward contracts are not
deemed to be the issuance of a senior security or the pledge of assets. There
can be no assurance that shareholders will approve these changes to the
investment restrictions.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
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 D. Gold Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
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<PAGE>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------- ------------- ---------------------
*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 Government 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, of Prudential Securities
New York, NY (1988-1991); Director of Quixote Corporation (since
February 1992) and BUNZL, PLC (since June 1991); formerly,
Director of Crazy Eddie Inc. (1987-1990) and Kaiser Tech., Ltd.
and Kaiser Aluminum and Chemical Corp. (March 1987-November
1988); formerly Executive Vice President and Director of 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 Prudential
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.
Robert J. Schultz Director Retired since January 1987; formerly Financial Vice President,
c/o Prudential Mutual Fund 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 Prudential
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 (since
One Seaport Plaza Principal January 1992) and Vice President (January 1986-December
New York, NY Financial and 1991) of Prudential Securities.
Accounting
Officer
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<PAGE>
Position with Principal Occupations
Name and Address the Fund During Past 5 Years
- ---------------- ------------- ---------------------
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.
</TABLE>
- -----------
* "Interested" director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential Securities or PMF.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities 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 in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills
at the beginning of each calendar quarter or, pursuant to an SEC exemptive
order, at the daily rate of return of the Fund. 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 February 11, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
As of February 11, 1994, Prudential Securities was record holder of
15,938,866 Class A shares (or 47.7% of the outstanding Class A shares) and
209,065,835 Class B shares (or 43.7% 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 January 31, 1994, PMF managed and/or administered open-end and closed-end
management investment companies with assets of approximately $51 billion.
According to the Investment Company Institute, as of June 30, 1993, the
Prudential Mutual Funds were the 10th largest family of mutual funds in the
United States.
Pursuant to an amended and restated 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
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<PAGE>
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 and .35 of 1% of the
excess over $2 billion of the Fund's average daily net assets. The fee is
computed daily and payable monthly. The Board of Directors of the Fund has
approved a reduction of the management fee effective October 1, 1993 which is
being presented to shareholders for their consideration at a special meeting of
shareholders to be held in 1994. The Manager has agreed, until such reduction is
approved by shareholders, 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
would be 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. There can be no assurance that the reduction in management fees will be
approved by shareholders. 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. 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 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 as a broker or dealer and qualifying its shares under state securities
laws, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
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 June 9, 1993 and by
shareholders of the Fund on January 11, 1990.
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
B-10
<PAGE>
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, 1991, was the largest
insurance company in the United States and the second largest insurance company
in the world. 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 (Prudential Securities), One Seaport Plaza,
New York, New York 10292 acts as the distributor of the Class B shares of the
Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan and
the Class B Plan, collectively, the Plans) adopted by the Fund under Rule 12b-1
under the Investment Company Act and separate distribution agreements (the
Distribution Agreements), PMFD and Prudential Securities (collectively, the
Distributor) incur the expenses of distributing the Fund's Class A and Class B
shares. 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
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 NASD maximum sales
charge rule described below. As 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 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)
may be used as reimbursement for distribution-related expenses with respect to
the Class B shares (asset-based sales charge). 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 was approved by the Class A shareholders on
December 19, 1990. The Class B Plan was approved by shareholders of the Fund on
January 11, 1990.
Class A Plan. For the year ended December 31, 1993, PMFD incurred
distribution expenses in the aggregate of $573,660, all of which were recovered
through the distribution fee paid by the Fund to PMFD under the Class A Plan.
These amounts were expended on commission credits to Prudential Securities and
Pruco Securities Corporation (Prusec) for payments of commissions and account
servicing fees to financial advisers.
In addition, for the year ended December 31, 1993, PMFD received
approximately $5,755,000 in initial sales charges.
Class B Plan. For the 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
this 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
B-11
<PAGE>
charges; and 63.3% ($38,363,600) in 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% ($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) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares, and (d) other incidental expenses relating to
branch promotion of Fund sales.
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-Class B Shares" 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.
The Class A and Class B Plans continue in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Directors, including a majority vote of the Rule 12b- 1 Directors, cast in
person at a meeting called for the purpose of voting on such continuance. The
Class A and Class B Plans may each be terminated at any time, without penalty,
by the vote of a majority of the Rule 12b-1 Directors or by the vote of the
holders of a majority of the outstanding shares of the applicable class on not
more than 30 days' written notice to any other party to the Plans. Neither Plan
may be amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class,
and all material amendments are required to be approved by the Board of
Directors in the manner described above. Each Plan will automatically terminate
in the event of its assignment. The Fund will not be contractually obligated to
pay expenses incurred under either the Class A or Class B Plan if they are
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 the Class A
and Class B shares of the Fund by PMFD and Prudential Securities, respectively.
The report includes an itemization of the distribution expenses and the purposes
of such expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Directors who are not interested persons of the Fund
shall be committed to the Directors who are not interested persons of the Fund.
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 National
Association of Securities Dealers, Inc., 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%. 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 either
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.
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
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<PAGE>
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.
Subject to the above considerations, the Manager may use Prudential
Securities as a broker for the Fund. In order for Prudential Securities to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by Prudential Securities must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
This standard would allow Prudential Securities 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 directors who are not "interested"
directors, has adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to Prudential Securities 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 in a written contract executed by the Fund and Prudential
Securities. Section 11(a) provides that 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 are also subject to such fiduciary standards as may be imposed upon
Prudential Securities 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. As of the date of this Statement of Additional Information,
these limits (which are subject to change) are 8,000 options on the most
actively traded stocks (i.e., (i) stocks that had trading volume of at least 40
million shares in the prior six-month period or (ii) stocks that have at least
120 million shares outstanding and also had trading volume of at least 30
million shares in the prior six-month period) and 5,500 options on stocks that
had a trading volume of at least 20 million shares in the prior six-month period
or stocks that have at least 40 million shares outstanding and a trading volume
of at least 15 million shares in the prior six-month period. All other stock
options will have a 3,000-contract limit. Option contracts on an industry index
are limited to between 15,000 and 25,000 contracts.
The table 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>
<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>
B-13
<PAGE>
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, $2,497,051 (75.33%) 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 initial sales
charge alternative) or (ii) on a deferred basis (the deferred sales charge
alternative). See "Shareholder Guide-How to Buy Shares of the Fund" in the
Prospectus.
The Fund issues two classes of shares: Class A shares are sold to investors
choosing the initial sales charge alternative and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares represent an interest in the same portfolio of investments of the Fund
and have the same rights, except that each class bears the separate expenses of
its Rule 12b-1 distribution plan and has exclusive voting rights with respect to
such plan. See "Distributor." The two classes also have 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 5.25% and
Class B 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 (5.25% of offering price) .......................... .54
-----
Maximum offering price to public ........................................ $10.26
-----
Class B
- -------
Net asset value, offering price and redemption price per Class B share* . $ 9.69
-----
- --------
*Class B shares are subject to a contingent deferred sales charge on
certain redemptions. See "Shareholder Guide-How to Sell Your
Shares-Contingent Deferred Sales Charges-Class B Shares" in the Prospectus.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES-CLASS A SHARES
RETIREMENT AND GROUP PLANS. Class A shares are offered at net asset value to
participants in certain retirement, deferred compensation, affinity group and
group savings plans, provided the plan has existing assets of at least $10
million or 2,500 eligible employees or members. The term "existing assets"
includes transferable cash, shares of Prudential Mutual Funds held at the
Transfer Agent and GICs maturing within three years. The retirement and group
plans eligible for this waiver of the initial sales charge include, but are not
limited to, pension, profit-sharing or stock bonus plans qualified or
non-qualified within the meaning of Section 401 of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code), deferred compensation and annuity
plans within the meaning of Sections 403(b)(7) and 457 of the Internal Revenue
Code, certain affinity group plans such as plans of credit unions and trade
associations and certain group savings plans.
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);
B-14
<PAGE>
(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. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants
described above under "Retirement and Group Plans."
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of the Class A
shares of the Fund and Class A shares of other Prudential Mutual Funds 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 the retirement and
group plans described under "Retirement and 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 Class A shares of
the Fund and Class A shares of other Prudential Mutual Funds. All Class A shares
of the Fund and Class A shares of other Prudential Mutual Funds 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 retirement and group plans described
above under "Retirement and Group Plans."
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. 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.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Class A or Class B 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
B-15
<PAGE>
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 Class A and Class B shareholders the
privilege of exchanging their shares of the Fund for shares of certain other
Prudential Mutual Funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential Mutual Funds may also be exchanged for Class A
and Class B shares, respectively, of the Fund. All exchanges are made on the
basis of relative net asset value next determined after receipt of an order in
proper form. An exchange will be treated as a redemption and purchase for tax
purposes. Shares may be exchanged for shares of another fund only if shares of
such fund may legally be sold under applicable state laws. For retirement and
group plans having a limited menu of Prudential Mutual Funds, the Exchange
Privilege is available for those funds eligible for investment in the particular
program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
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. Shareholders of the Fund may exchange their Class B shares for
Class B shares of certain other Prudential Mutual Funds and shares of Prudential
Special Money Market Fund, a money market fund. If Class B shares of the Fund
are exchanged for Class B shares of other Prudential Mutual Funds, no contingent
deferred sales charge will be payable upon such exchange of Class B shares, but
a contingent deferred sales charge will be payable upon the redemption of the
Class B 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 shares of the Fund may also be exchanged for shares of an eligible
money market fund without imposition of any contingent deferred sales charge 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 Class B
contingent deferred sales charge 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 contingent deferred sales charge, 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. Coversely, 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.
At any time after acquiring shares of other funds participating in the
Class B Exchange Privilege the shareholder may again exchange those shares (and
any reinvested dividends and distributions) for Class B shares of the Fund
without subjecting such shares to any contingent deferred sales charge. Shares
of any fund participating in the Class B Exchange Privilege that were acquired
B-16
<PAGE>
through reinvestment of dividends or distributions may be exchanged for Class B
shares of other funds without being subject to any contingent deferred sales
charge.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and over $97,000 at a public university.1
The following chart shows how much you would need in monthly
investments to achieve specified lump sums to finance your investment
goals.2
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
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
<FN>
See "Automatic Savings Accumulation Plan."
- ------------
1 Source 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.
2 The 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.
</FN>
</TABLE>
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in Class A or Class B 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 having Class A or
Class B shares of the Fund held 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 shares may be subject to a CDSC.
See "Shareholder Guide-How to Sell Your Shares-Contingent Deferred Sales
Charge-Class B Shares" 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
B-17
<PAGE>
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 are inadvisable because of the sales charge applicable to (i)
the purchase of Class A shares and (ii) the withdrawal of Class B 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.
<TABLE>
<CAPTION>
Tax-Deferred Compounding(1)
Contributions Personal
Made Over: Savings IRA
------------ -------- -------
<S> <C> <C>
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
<FN>
- ------------
(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.
</FN>
</TABLE>
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. 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.
B-18
<PAGE>
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 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 shares will generally be lower than the net
asset value of Class A shares as a result of the larger distribution fee with
respect to Class B shares. It is expected, however, that the net asset value per
share of the two classes will tend to converge immediately after the recording
of dividends which will differ by approximately the amount of the distribution
expense accrual differential between 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
B-19
<PAGE>
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.
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.
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 and Class B shares. See "How the Fund Calculates Performance" in
the Prospectus.
Average annual total return is computed according to the following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of ahypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at the
end of the 1, 5 or 10 year periods (or fractional portion
thereof).
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
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 9.50%,
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. 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
and Class B 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 of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at the
end of the 1, 5 or 10 year periods (or fractional portion
thereof).
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 50.92%, 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.
See "How the Fund Calculates Performance" in the Prospectus.
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 and Class B 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
YIELD = 2[(------- + 1)^6 - 1 ]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
B-20
<PAGE>
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.
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.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
Its mailing address is P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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.
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.
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.
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.*
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.*
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 ClassB 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. <PAGE>
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 11, 1994 there were 51,209 and 546,676 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
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>
Maureen Behning-Doyle Executive Vice Executive Vice President, PMF; Senior Vice President, Prudential
President Securities Incorporated (Prudential Securities)
John D. Brookmeyer, Jr. Director Senior Vice President, PIC; Senior Vice President The Prudential Insurance
Two Gateway Center Company of America (Prudential)
Newark, NJ 07102
Susan C. Cote Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities
Fred A. Fiandaca Executive Vice President, Executive Vice President, Chief Operating Officer and Director, PMF;
Raritan Plaza One Chief Operating Officer Chairman, Chief Executive Officer and Director, Prudential Mutual Fund
Edison, NJ 08847 and Director Services, Inc.
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities
Frank W. Giordano Executive Vice Executive Vice President, General Counsel and Secretary, PMF; Executive
President, General Vice President, Prudential Securities
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, Prudential
Administrative Securities
Officer, Chief
Financial Officer,
Treasurer and Director
Eugene B. Heimberg Director Senior Vice President, Prudential
Prudential Plaza
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, Chief President, Chief Executive Officer and Director, PMF; Executive Vice
Executive Officer and President, Director and Member of Operating Committee,
Director Prudential Securities; Director, PSG
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant Secretary, PMF;
President, Senior Senior Vice President and Senior Counsel, Prudential Securities
Counsel and
Assistant Secretary
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ 07102
(b) 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.
</TABLE>
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>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President, Senior Vice President, Chief Financial and Compliance Officer,
Chief Financial PIC; Vice President, Prudential
and Compliance
Officer
William M. Bethke Senior Vice President Senior Vice President, Prudential
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 Senior Vice President Senior Vice President, Prudential
and Director
Garnett L. Keith, Jr. President and Director Vice Chairman and Director, Prudential
William P. Link Executive Vice President Executive Vice President, Prudential
Four Gateway Center
Newark, NJ 07102
Robert E. Riley Executive Vice Executive Vice President, Prudential; Director, PSG
500 Boyleston Ave. President
Boston, MA 02199
James W. Stevens Executive Vice Executive Vice President, Prudential; Director, PSG
Four Gateway Center President
Newark, NJ 07102
Robert C. Winters Director Chairman of the Board and Chief Executive Officer, Prudential;
Chairman of the Board and Director, PSG
Claude J. Zinngrabe, Jr. Vice President Vice President, Prudential
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a)(i) Prudential Securities
Prudential Securities is distributor for Prudential Government Securities
Trust (Intermediate Term Series) 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 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(R) Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (except
Connecticut Money Market Series, Massachusetts Money Market Series, New York
Money Market Series, New Jersey Money Market Series and Florida 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, 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) and
the Target Portfolio Trust. Prudential Securities is also a depositor for the
following unit investment trusts:
The Corporate Income Fund
Corporate Investment Trust Fund
C-5
<PAGE>
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 California Income
Series and Class A shares of the 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-Bache Equity Fund,
Inc. (d/b/a Prudential Equity Fund), 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(R) Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (Arizona
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 Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth
Equity Fund) and the Target Portfolio Trust.
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME^(1) UNDERWRITER REGISTRANT
- -------- ----------- -----------
<S> <C> <C>
Alan D. Hogan .......... Executive Vice President, 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
(ii) Prudential Mutual Fund Distributors, Inc.
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
<FN>
------------
^(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
</FN>
</TABLE>
(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 undertaken 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 certifies that it meets all of
the requirements for effectiveness of this Registration Statement and has duly
caused this Post-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York, on the 2nd day of March, 1994.
PRUDENTIAL UTILITY FUND
By: /s/ Lawrence C. McQuade
---------------------------------
(Lawrence C. McQuade, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Susan C. Cote
- ----------------------------
Susan C. Cote Treasurer March 2, 1994
/s/ Richard A. Redeker
- ----------------------------
Richard A. Redeker Director March 2, 1994
/s/ Robert R. Fortune
- ----------------------------
Robert R. Fortune Director March 2, 1994
/s/ Delayne D. Gold
- ----------------------------
Delayne D. Gold Director March 2, 1994
/s/ Harry A. Jacobs, Jr.
- ----------------------------
Harry A. Jacobs, Jr. Director March 2, 1994
/s/ Lawrence C. McQuade
- ----------------------------
Lawrence C. McQuade President and Director March 2, 1994
/s/ Thomas A. Owens, Jr.
- ----------------------------
Thomas A. Owens, Jr. Director March 2, 1994
/s/ Robert J.Schultz
- ----------------------------
Robert J.Schultz Director March 2, 1994
/s/ Merle T. Welshans
- ----------------------------
Merle T. Welshans Director March 2, 1994
C-8
<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.
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.
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.
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.*
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.
<PAGE>
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.*
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.
Exhibits 4(c)
INSTRUMENTS DEFINING RIGHTS OF SHAREHOLDERS
The following is a list of the provisions of the
Articles of Incorporation, as amended, and By-Laws of Prudential-Bache
Utility Fund, Inc. setting forth the rights of shareholders.
I. Relevant Provisions of Articles of Incorporation:
ARTICLE V - Common Stock
ARTICLE VII - Miscellaneous
ARTICLE VIII - Amendments
II. Relevant Provisions of By-Laws:
ARTICLE I - Stockholders
ARTICLE IV - Capital Stock
ARTICLE VII - Indemnification
ARTICLE IX - Amendment of By-Laws
Exhibit 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.
<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.
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.
<PAGE>
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, so permits.
<PAGE>
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.
<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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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 (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.
<PAGE>
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.
By: ________________________
Robert F. Gunia
Executive Vice President
Prudential-Bache Utility
Fund, Inc.
By: _______________________
Lawrence C. McQuade
President
Exhibit 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.
<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 to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board
<PAGE>
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, so permits.
<PAGE>
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.
<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.
<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;
<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.
<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 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
<PAGE>
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 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.
<PAGE>
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 with the applicable provisions of the Investment Company
Act, the latter shall control.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
Robert F. Gunia
Senior Vice President
Prudential-Bache Utility
Fund, Inc.
By: _______________________
Lawrence C. McQuade
President
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 18 to the registration
statement of 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, NY 10036
February 24, 1994
Exhibit 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
<PAGE>
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 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
<PAGE>
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.
<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;
(c) advertising for the Fund in various forms through any
available medium, including the cost of printing and
<PAGE>
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.
<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 the Plan, including the addition or deletion of categories of
<PAGE>
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.
Exhibit 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
<PAGE>
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 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
<PAGE>
select, including Pruco Securities Corporation (Prusec). Services provided
and activities undertaken to distribute Class B shares of the Fund are
referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall 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. The Fund shall carry forward
amounts reimbursable that are not paid because they exceed .75 of 1% per
<PAGE>
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.
Costs of the Distributor subject to reimbursement hereunder are all
costs of performing Distribution Activities and include, among others:
<PAGE>
(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
<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 full force and effect
thereafter for so long as such continuance is specifically approved at least
<PAGE>
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 Fund
<PAGE>
(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
