<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY __, 1994
REGISTRATION NO. 2-75128
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 17 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 18 /X/
(Check appropriate box or boxes)
------------------------
PRUDENTIAL EQUITY FUND, INC.
(Exact name of registrant as specified in charter)
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 of Process)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a), of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of shares of its Common Stock par
value $.01 per share. The Registrant filed a notice under such Rule for its
fiscal year ended December 31,1993 on February 28, 1994.
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ----------------------------------------------- ----------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Fund Expenses
Item 3. Condensed Financial Information... Fund Expenses; Financial
Highlights; 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 Fund................ Financial Highlights; How the Fund
is Managed; General Information
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......... Not Applicable
PART B
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information and History... General Information and History
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........................ Dividends, Distributions and 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 EQUITY FUND, INC.
- ----------------------------------------------------
PROSPECTUS DATED , 1994
- ----------------------------------------------------------------
Prudential Equity Fund, Inc. (the Fund) is an open-end, diversified management
investment company whose investment objective is long-term growth of capital.
The Fund will seek to achieve this objective by investing primarily in common
stocks of major, established corporations which, in the opinion of its
investment adviser, are believed to be in sound financial condition and to have
prospects of price appreciation greater than broadly based stock indices. The
Fund may also invest in options on stocks and stock indices. See "How the Fund
Invests--Investment Objective and Policies."
The Fund's purchase and sale of put and call options and related short-term
trading may result in a high portfolio turnover rate. These activities may be
considered speculative and may result in higher risks and costs to the Fund. The
Fund may also buy and sell stock index options, futures and options on futures,
forward foreign currency exchange contracts, options on foreign currencies and
futures contracts on foreign currencies and options thereon pursuant to limits
described herein. See "How the Fund Invests--Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated , 1994, which information is
incorporated herein by reference (is legally considered to be a part of this
Prospectus) and is available without charge upon request to Prudential Equity
Fund, Inc., at the address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
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>
FUND HIGHLIGHTS
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.
WHAT IS PRUDENTIAL EQUITY FUND, INC.
Prudential Equity Fund, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in common stocks of major,
established corporations which, in the opinion of the Fund's investment adviser,
are believed to be in sound financial condition and to have prospects of price
appreciation greater than broadly based stock indices. The Fund may also invest
in preferred stocks and bonds. See "How the Fund Invests--Investment Objective
and Policies" at page 7.
WHAT ARE THE FUND'S SPECIAL CHARACTERISTICS AND RISKS?
In seeking to achieve its investment objective, the Fund may engage in the
purchase and sale of put and call options and related short-term trading which
may result in a high portfolio turnover rate. These activities may be considered
speculative and may result in higher risks and costs to the Fund. The Fund may
also buy and sell stock index options, futures and options on futures,forward
foreign currency exchange contracts, options on foreign currencies and futures
contracts on foreign currencies and options thereon pursuant to limits described
herein. See "How the Fund Invests--Investment Objective and Policies" at page 7.
In addition, the Fund may invest up to 30% of its total assets in foreign
securities. Investing in securities of foreign companies and countries involves
certain considerations and risks not typically associated with investing in
securities of domestic companies. See "How the Fund Invests--Other Investments
and Policies" at page 13.
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 .50 of 1% of
the Fund's average daily net assets up to and including $500 million, .475 of 1%
of the next $500 million and .45 of 1% of the average daily net assets in excess
of $1 billion. As of March 31, 1994, PMF served as manager or administrator to
[66] investment companies, including [37] mutual funds, with aggregate assets of
approximately [$49] billion. The Prudential Investment Corporation (PIC or the
Subadviser) furnishes investment advisory services in connection with the
management of the Fund under a Subadvisory Agreement with PMF. See "How the Fund
Is Managed--Manager" at page 15.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares and is currently paid for its services at an annual
rate of .25 of 1% of the average daily net assets of the Class A shares.
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class B and Class C shares and is paid for its
services at an annual rate of 1% of the average daily net assets of each of the
Class B and Class C shares, respectively. See "How the Fund Is Managed--
Distributor" at page 16.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. Thereafter, the minimum investment is $100
for all classes. There is no minimum investment requirement for certain
retirement plans or custodial accounts for the benefit of minors. For purchases
made through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Guide--How to Buy Shares of the
Fund" at page 21 and "Shareholder Guide--Shareholder Services" at page 28.
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 (i) either at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "How The Fund Values Its Shares"
at page 18 and "Shareholder Guide--How to Buy Shares of the Fund" at page 21.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares:
- Class A Shares:_ Sold with an initial sales charge of up to 5% of the
offering price.
- Class B Shares:_ Sold without an initial sales charge but are subject
to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be
imposed on certain redemptions made within six years
of purchase. Although Class B shares are subject to
higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically
convert to Class A shares (which are subject to lower
ongoing expenses) approximately seven years after
purchase.
- Class C Shares:_ Sold without an initial sales charge and for one year
after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 22.
HOW DO I SELL MY SHARES?
You may redeem shares of the Fund at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 24.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income semi-annually and
make distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 19.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES+ CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------------- -------------------------------- -------------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 5% None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends......... None None None
1% on redemptions
made within one
year of purchase
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.*
Redemption Fees.......................... None None None
Exchange Fees............................ None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C SHARES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS) ---------------------- -------------------------------- -------------------
<S> <C> <C> <C>
Management Fees........................... .47% .47% .47%
12b-1 Fees+.............................. .25++ 1.00 1.00++
Other Expenses........................... .24 .24 .24
----- ----- -----
Total Fund Operating Expenses............ .96% 1.71% 1.71%
----- ----- -----
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
Class A................................................ $ 59 $ 79 $100 $162
Class B................................................ $ 67 $ 84 $103 [$173]
Class C**.............................................. $ 27 $ 54 $ 93 $202
You would pay the following expenses on the same
investment, assuming no redemption:
Class A................................................ $ 59 $ 79 $100 $162
Class B................................................ $ 17 $ 54 $ 93 [$173]
Class C**.............................................. $ 17 $ 54 $ 93 $202
The above example with respect to Class A and Class B shares is based on restated data for the Fund's fiscal
year ended December 31, 1993. The above example with respect to Class C shares is based on expenses expected
to have been incurred if Class C shares had been in existence during the fiscal year ended December 31,
1993. THE EXAMPLE 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 ESTIMATED OPERATING
EXPENSES OF THE FUND, SUCH AS DIRECTORS' AND PROFESSIONAL FEES, REGISTRATION FEES, REPORTS TO SHAREHOLDERS,
TRANSFER AGENCY AND CUSTODIAN FEES.
<FN>
- -------------
* CLASS B SHARES WILL AUTOMATICALLY CONVERT TO CLASS A SHARES APPROXIMATELY
SEVEN YEARS AFTER PURCHASE. SEE "SHAREHOLDER GUIDE-- CONVERSION
FEATURE--CLASS B SHARES.
** ESTIMATED BASED ON EXPENSES EXPECTED TO HAVE BEEN INCURRED IF CLASS C
SHARES HAD BEEN IN EXISTENCE DURING THE FISCAL YEAR ENDED DECEMBER 31,
1993.
+ PURSUANT TO RULES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.,
THE AGGREGATE INITIAL SALES CHARGES, DEFERRED SALES CHARGES AND ASSET-BASED
SALES CHARGES ON SHARES OF THE FUND MAY NOT EXCEED 6.25% OF TOTAL GROSS
SALES, SUBJECT TO CERTAIN EXCLUSIONS. THIS 6.25% LIMITATION IS IMPOSED ON
EACH CLASS OF THE FUND RATHER THAN ON A PER SHAREHOLDER BASIS. THEREFORE,
LONG-TERM CLASS B AND CLASS C SHAREHOLDERS OF THE FUND MAY PAY MORE IN
TOTAL SALES CHARGES THAN THE ECONOMIC EQUIVALENT OF 6.25% OF SUCH
SHAREHOLDERS' INVESTMENT IN SUCH SHARES. SEE "HOW THE FUND IS
MANAGED--DISTRIBUTOR."
++ ALTHOUGH THE CLASS A DISTRIBUTION AND SERVICE PLAN, PROVIDES THAT THE FUND
MAY PAY A DISTRIBUTION FEE OF UP TO AN ANNUAL RATE OF .30 OF 1% OF THE
AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES, THE DISTRIBUTOR HAS AGREED
TO LIMIT ITS DISTRIBUTION EXPENSES WITH RESPECT TO CLASS A SHARES OF THE
FUND TO .25 OF 1% OF THE AVERAGE DAILY NET ASSET VALUE OF THE CLASS A
SHARES FOR THE FISCAL YEAR ENDING DECEMBER 31, 1994. SEE "HOW THE FUND IS
MANAGED--DISTRIBUTOR."
</TABLE>
4
<PAGE>
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
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 the periods indicated. The information is based on data
contained in the financial statements. No Class C shares were outstanding
during the periods indicated.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
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........................... $ 12.07 $ 11.39 $ 9.84 $ 11.25 ++
--------- --------- --------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......................................... .23 .24 .27 .31
Net realized and unrealized gain (loss) on investment
transactions.................................................. 2.42 1.30 2.09 (.15 )++
--------- --------- --------- -------------
Total from investment operations............................. 2.65 1.54 2.36 .16 ++
--------- --------- --------- -------------
LESS DISTRIBUTIONS
Dividends from net investment income........................... (.22) (.23) (.24) (.35 )
Distributions from net realized capital gains.................. (.70) (.63) (.57) (1.22 )
--------- --------- --------- -------------
Total distributions.......................................... (.92) (.86) (.81) (1.57 )
--------- --------- --------- -------------
Net asset value, end of period................................. $ 13.80 $ 12.07 $ 11.39 $ 9.84
--------- --------- --------- -------------
--------- --------- --------- -------------
TOTAL RETURN#:................................................. 22.14% 13.65% 24.55% .29 %++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................................ $ 232,535 $ 136,834 $ 82,845 $ 30,264
Average net assets (000)....................................... $ 190,778 $ 111,489 $ 57,845 $ 27,371
Ratios to average net assets:
Expenses, including distribution fees........................ .91% .94% .97% 1.01 %*
Expenses, excluding distribution fees........................ .71% .74% .77% .84 %*
Net investment income........................................ 1.71% 1.91% 2.36% 2.86 %*
Portfolio turnover............................................. 21% 22% 19% 76 %
<FN>
- -------------
*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 a full year are not
annualized.
++Restated.
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
The following financial highlights with respect to the five-year period 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 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 the periods indicated. The information is based on data contained in
the financial statements. No Class C shares were outstanding during the periods
indicated.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988* 1987 1986+
----------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 12.08 $ 11.40 $ 9.85 $ 11.83 $ 9.18 $ 8.19 $ 9.04 $ 9.05
----------- ----------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS......................
Net investment income............ .12 .14 .18 .26 .19 .19 .03 .12
Net realized and unrealized gain
(loss) on investment
transactions.................... 2.42 1.30 2.09 (.76) 2.75 .99 .11 1.15
----------- ----------- --------- --------- --------- --------- --------- ---------
Total from investment
operations.................... 2.54 1.44 2.27 (.50) 2.94 1.18 .14 1.27
----------- ----------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (.12) (.13) (.15) (.26) (.20) (.19) (.15) (.06)
Distributions from net realized
capital gains................... (.70) (.63) (.57) (1.22) (.09) -- (.84) (1.22)
----------- ----------- --------- --------- --------- --------- --------- ---------
Total distributions............ (.82) (.76) (.72) (1.48) (.29) (.19) (.99) (1.28)
----------- ----------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period... $ 13.80 $ 12.08 $ 11.40 $ 9.85 $ 11.83 $ 9.18 $ 8.19 $ 9.04
----------- ----------- --------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN++:.................. 21.13% 12.72% 23.55% (4.28)% 32.04% 14.39% 0.87% 14.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................... $1,794,634 $1,203,740 $904,382 $578,213 $629,230 $514,943 $525,549 $315,781
----------- ----------- --------- --------- --------- --------- --------- ---------
Average net assets (000)......... $1,522,992 $1,042,028 $757,485 $583,016 $567,575 $530,415 $531,051 $253,230
Ratios to average net assets:
Expenses, including
distribution fees+++.......... 1.71% 1.74% 1.77% 1.89% 1.62% 1.61% 1.67% 1.52%
Expenses, excluding
distribution fees+++.......... .71% .74% .77% .89% .82% .86% .79% .86%
Net investment income.......... .91% 1.11% 1.56% 2.27% 1.66% 1.84% 1.03% 1.40%
Portfolio turnover............... 21% 22% 19% 76% 57% 57% 90% 123%
<CAPTION>
1985+ 1984+
--------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 7.21 $ 7.20
--------- --------
INCOME FROM INVESTMENT
OPERATIONS......................
Net investment income............ .14 .13
Net realized and unrealized gain
(loss) on investment
transactions.................... 2.12 .25
--------- --------
Total from investment
operations.................... 2.26 .38
--------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (.05) (.08)
Distributions from net realized
capital gains................... (.37) (.29)
--------- --------
Total distributions............ (.42) (.37)
--------- --------
Net asset value, end of period... $ 9.05 $ 7.21
--------- --------
--------- --------
TOTAL RETURN++:.................. 32.25% 5.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................... $104,333 $47,500
--------- --------
Average net assets (000)......... $ 68,454 $41,022
Ratios to average net assets:
Expenses, including
distribution fees+++.......... 1.27% 1.52%
Expenses, excluding
distribution fees+++.......... 1.13% 1.52%
Net investment income.......... 1.85% 1.87%
Portfolio turnover............... 106% 105%
<FN>
- ------------
*On May 2, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since then
has acted as manager of the Fund. See "Manager" in the Statement of Additional
Information.
+Restated to reflect 2 for 1 stock split paid to shareholders of record on
April 23, 1986.
++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.
+++The Fund adopted a plan of distribution effective July 1, 1985 which was
amended and restated on January 22, 1990. Consequently, historical expenses
and ratios of expenses to average net assets for Class B shares are not
necessarily indicative of future expenses and related ratios for that Class.
See "How the Fund is Managed-- Distributor."
</TABLE>
6
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND WILL
SEEK TO ACHIEVE THIS OBJECTIVE BY INVESTING PRIMARILY IN COMMON STOCKS OF MAJOR,
ESTABLISHED CORPORATIONS WHICH, IN THE OPINION OF THE FUND'S INVESTMENT ADVISER,
ARE BELIEVED TO BE IN SOUND FINANCIAL CONDITION AND HAVE PROSPECTS OF PRICE
APPRECIATION GREATER THAN BROADLY BASED STOCK INDICES. THE FUND MAY ALSO INVEST
IN PREFERRED STOCKS AND BONDS, WHICH HAVE EITHER ATTACHED WARRANTS OR A
CONVERSION PRIVILEGE INTO COMMON STOCKS. AT TIMES, WHEN ECONOMIC CONDITIONS OR
GENERAL LEVELS OF COMMON STOCK PRICES ARE SUCH THAT THE INVESTMENT ADVISER DEEMS
IT PRUDENT TO ADOPT A DEFENSIVE POSITION BY REDUCING OR CURTAILING INVESTMENTS
IN COMMON STOCKS, A LARGER PROPORTION OF THE FUND'S ASSETS THAN USUAL MAY BE
INVESTED IN PREFERRED STOCKS OR SHORT-TERM OR LONG-TERM DEBT INSTRUMENTS (EITHER
CONVERTIBLE OR NON-CONVERTIBLE). THE SHARES OF THE FUND ARE SUBJECT TO THE RISKS
OF COMMON STOCK INVESTMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE. The Fund may invest up to 30% of its assets in
foreign securities, which may involve additional risks. Such investment risks
include future adverse political and economic developments, possible seizure or
nationalization of the company in which securities the Fund has invested and
possible establishment of exchange controls or other foreign governmental laws
that might adversely affect the payment of dividends.
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.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE INCOME. THESE STRATEGIES
INCLUDE (1) THE PURCHASE AND WRITING (I.E., SALE) OF PUT OPTIONS AND CALL
OPTIONS ON EQUITY SECURITIES, (2) THE PURCHASE AND SELLING OF PUT AND CALL
OPTIONS ON INDICES, (3) THE PURCHASE AND SALE OF EXCHANGE TRADED STOCK INDEX
FUTURES AND OPTIONS THEREON AND (4) THE PURCHASE AND SALE OF OPTIONS ON FOREIGN
CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS THEREON. THE
FUND MAY ENGAGE IN THESE TRANSACTIONS ON SECURITIES OR COMMODITIES EXCHANGES OR,
IN THE CASE OF EQUITY, STOCK INDEX AND FOREIGN CURRENCY OPTIONS, ALSO IN THE
OVER-THE-COUNTER MARKET. THE FUND MAY ALSO PURCHASE AND SELL FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS. The Fund's ability to use these strategies may be
limited by market conditions, regulatory limits and tax considerations and there
can be no assurance that any of these strategies will succeed. New financial
products and risk management techniques continue to be developed and the Fund
may use these new investments and techniques to the extent they are consistent
with its investment objective and policies. See "Investment Objective and
Policies" in the Statement of Additional Information.
OPTIONS TRANSACTIONS
OPTIONS ON EQUITY SECURITIES. THE FUND INTENDS TO PURCHASE AND WRITE (I.E.,
SELL) PUT AND CALL OPTIONS ON EQUITY SECURITIES THAT ARE TRADED ON SECURITIES
EXCHANGES, ON NASDAQ (NASDAQ OPTIONS) OR IN THE OVER-THE-COUNTER MARKET. A call
option is a short-term contract (having a duration of nine months or less)
pursuant to which the purchaser, in return for a premium paid, has the right to
buy the security underlying the option at a specified exercise price at any time
during the term of
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the option or, in the case of a European-style option, at the expiration of the
option. The writer of the call option receives a premium and has the obligation,
if the option is exercised, to deliver the underlying security against payment
of the exercise price. A put option is a similar contract which gives the
purchaser, who pays 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. The Fund will purchase put options only when its
investment adviser perceives significant short-term risk, but substantial
long-term appreciation, in the underlying security.
THE FUND WILL WRITE CALL OPTIONS ONLY IF THEY ARE COVERED. A call option is
covered if the Fund holds on a share-for-share basis a call on the same security
as the call written by the Fund where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. 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 writer of an option wishes to terminate the obligation, he or she 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 writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she has been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of an exchange-traded option or a NASDAQ
option is required to pledge for the benefit of the broker the underlying
security or other assets in accordance with the rules of The Options Clearing
Corporation (OCC), an institution created to interpose itself between buyers and
sellers of options. Technically, the OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, guarantees the
transaction.
In the case of OTC options, it is not possible to effect a closing transaction
in the same manner as exchange-traded options because a clearing corporation is
not interposed between the buyer and seller of the option. In order to terminate
the obligation represented by an OTC option, the Fund would need to agree to the
termination of the obligation represented by an OTC option with the counterparty
thereto. Any such cancellation, if agreed to, may require the Fund to pay a
premium to the counterparty. Alternatively, the Fund could write an OTC put
option in effect to close its position on an OTC call option or write a call
option to close its position on an OTC put option. However, the Fund would
remain exposed to each counterparty's credit risk on the call or put option
until such option is exercised or expires. There is no guarantee that the Fund
will be able to write put or call options, as the case may be, that will
effectively close an existing position.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
THE FUND MAY ALSO PURCHASE A "PROTECTIVE PUT," I.E., A PUT OPTION ACQUIRED FOR
THE PURPOSE OF PROTECTING A PORTFOLIO SECURITY FROM A DECLINE IN MARKET VALUE.
In exchange for the premium paid for the put option, the Fund acquires the right
to sell the underlying security at the exercise price of the put regardless of
the extent to which the underlying security declines in value. The loss to the
Fund is limited to the premium paid for, and transaction costs in connection
with, the put plus the initial excess, if any, of the market price of the
underlying security over the exercise price. However, if the market price of the
security
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underlying the put rises, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
(net of transaction costs) for which the put may be sold. Similar principles
apply to the purchase of puts on stock indices, as described below.
OPTIONS ON STOCK INDICES. THE FUND MAY ALSO PURCHASE AND WRITE (I.E., SELL)
PUT AND CALL OPTIONS ON STOCK INDICES TRADED ON SECURITIES EXCHANGES, ON NASDAQ
OR IN THE OVER-THE-COUNTER MARKET. Options on stock indices are similar to
options on stock except that, rather than 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 such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the multiplier). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash, and gain or loss depends on
price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. The Fund's investment adviser currently uses these techniques
in conjunction with the management of other mutual funds.
Because exercises of index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific stocks, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. In addition, unless the Fund has other liquid assets which are
sufficient to satisfy the exercise of a call, the Fund would be required to
liquidate portfolio securities or borrow in order to satisfy the exercise.
THE FUND'S SUCCESSFUL USE OF OPTIONS ON INDICES DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND IS SUBJECT TO
VARIOUS ADDITIONAL RISKS. The correlation between movements in the index and the
price of the securities being written against is imperfect and the risk from
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the composition of the relevant index. Accordingly, a decrease in
the value of the securities being written against may not be wholly offset by a
gain on the exercise of a stock index put option held by the Fund. Likewise, if
a stock index call option written by the Fund is exercised, the Fund may incur a
loss on the transaction which is not offset, wholly or in part, by an increase
in the value of the securities being written against, which securities may,
depending on market circumstances, decline in value. For additional discussion
of risks associated with these transactions, see "Investment Objective and
Policies--Limitations on Purchase and Sale of Stock Options, Options on Indices
and Stock Index Futures--Risks of Options on Indices" in the Statement of
Additional Information.
OPTIONS POSITION LIMITS. Transactions by the Fund in options on securities and
on stock indices will be subject to limitations, if any, established by each of
the exchanges, boards of trade or other trading facilities (including NASDAQ)
governing the maximum number of options in each class which may be written or
purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or different
exchanges, boards of trade or other trading facilities or are held or written in
one or more accounts or through one or more brokers. Thus, the number of options
which the
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Fund may write or purchase may be affected by options written or purchased by
other investment advisory clients of the Fund's investment adviser. An exchange,
board of trade or other trading facility may order the liquidation of positions
found to be in excess of these limits, and it may impose certain other
sanctions.
OPTIONS ON FOREIGN CURRENCIES. THE FUND IS PERMITTED TO PURCHASE AND WRITE PUT
AND CALL OPTIONS ON FOREIGN CURRENCIES AND ON FUTURES CONTRACTS ON FOREIGN
CURRENCIES TRADED ON SECURITIES EXCHANGES OR BOARDS OF TRADE (FOREIGN AND
DOMESTIC) FOR HEDGING PURPOSES IN A MANNER SIMILAR TO THAT IN WHICH FORWARD
FOREIGN CURRENCY EXCHANGE CONTRACTS AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
WILL BE EMPLOYED. Options on foreign currencies and on futures contracts on
foreign currencies are similar to options on stock, except that the Fund has the
right to take or make delivery of a specified amount of foreign currency, rather
than stock.
THE FUND MAY PURCHASE AND WRITE OPTIONS TO HEDGE THE FUND'S PORTFOLIO
SECURITIES DENOMINATED IN FOREIGN CURRENCIES. If there is a decline in the
dollar value of a foreign currency in which the Fund's portfolio securities are
denominated, the dollar value of such securities will decline even though the
foreign currency value remains the same. To hedge against the decline of the
foreign currency, the Fund may purchase put options on futures contracts on such
foreign currency. If the value of the foreign currency declines, the gain
realized on the put option would offset, in whole or in part, the adverse effect
such decline would have on the value of the portfolio securities. Alternatively,
the Fund may write a call option on a futures contract on the foreign currency.
If the value of the foreign currency declines, the option would not be exercised
and the decline in the value of the portfolio securities denominated in such
foreign currency would be offset in part by the premium the Fund received for
the option.
If, on the other hand, the investment advisor anticipates purchasing a foreign
security and also anticipates a rise in the value of such foreign currency
(thereby increasing the cost of such security), the Fund may purchase call
options on the foreign currency. The purchase of such options could offset, at
least partially, the effects of the adverse movements of the exchange rates.
Alternatively, the Fund could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO PROTECT
THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF CURRENCY
EXCHANGE RATES. A forward contract on foreign currency is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days agreed upon by the parties from the date of the contract at a
price set on the date of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (typically large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged for such trades.
The Fund may not use forward contracts to generate income, although the use of
such contracts may incidentally generate income. There is no limitation on the
value of forward contracts into which the Fund may enter. However, the Fund's
dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of a forward contract with respect to specific receivables or
payables of the Fund generally arising in connection with the purchase or sale
of its portfolio securities and accruals of interest or dividends receivable and
Fund expenses. Position hedging is the sale of a foreign currency with respect
to portfolio security positions denominated or quoted in that currency. The Fund
will not speculate in forward contracts. The Fund may not position hedge with
respect to a particular currency for an amount greater than the aggregate market
value (determined at the time of making any sale of a forward contract) of
securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when the Fund anticipates the receipt in a
foreign currency of dividends or interest payments on a security which it holds,
the Fund may desire to "lock in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as the case may be.
By entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency
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involved in the underlying transaction, the Fund will be able to protect itself
against possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received. Additionally, when the investment adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the portfolio securities of the Fund denominated in such
foreign currency. Requirements under the Internal Revenue Code for qualification
as a regulated investment company may limit the Fund's ability to engage in
transactions in forward contracts. See "Dividends, Distributions and Taxes" in
the Statement of Additional Information.
FUTURES TRANSACTIONS
STOCK INDEX FUTURES. THE FUND MAY USE STOCK INDEX FUTURES TRADED ON A
COMMODITIES EXCHANGE OR BOARD OF TRADE FOR HEDGING, INCOME ENHANCEMENT AND RISK
REDUCTION PURPOSES.
A STOCK INDEX FUTURES CONTRACT IS AN AGREEMENT IN WHICH THE WRITER (OR SELLER)
OF THE CONTRACT AGREES TO DELIVER TO THE BUYER AN AMOUNT OF CASH EQUAL TO A
SPECIFIC DOLLAR AMOUNT TIMES THE DIFFERENCE BETWEEN THE VALUE OF A SPECIFIC
STOCK INDEX AT THE CLOSE OF THE LAST TRADING DAY OF THE CONTRACT AND THE PRICE
AT WHICH THE AGREEMENT IS MADE. No physical delivery of the underlying stocks in
the index is made. When the futures contract is entered into, each party
deposits with a broker or in a segregated custodial account approximately 5% of
the contract amount, called the "initial margin." Subsequent payments to and
from the broker, called "variation margin," will be made on a daily basis as the
price of the underlying stock index fluctuates making the long and short
positions in the futures contracts more or less valuable, a process known as
"marked to market."
OPTIONS ON STOCK INDEX FUTURES. The Fund may also purchase and write options
on stock index futures for hedging, income enhancement and risk reduction
purposes. In the case of options on stock index futures, the holder of the
option pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume a position in a stock index
futures contract (a long position if the option is a call and short position if
the option is a put). If the option is exercised by the holder before the last
trading day during the option period, the option writer delivers the futures
position, as well as any balance in the writer's futures margin account, which
represents the amount by which the market price of the stock index futures
contract at exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the stock index future. If it
is exercised on the last trading day, the option writer delivers to the option
holder cash in an amount equal to the difference between the option exercise
price and the closing level of the relevant index on the date the option
expires.
FUTURES CONTRACTS ON FOREIGN CURRENCIES. THE FUND IS PERMITTED TO BUY AND SELL
FUTURES CONTRACTS ON FOREIGN CURRENCIES (FUTURES CONTRACTS) SUCH AS THE EUROPEAN
CURRENCY UNIT, AND PURCHASE AND WRITE OPTIONS THEREON FOR HEDGING AND RISK
REDUCTION PURPOSES. A European Currency Unit is a basket of specified amounts of
the currencies of certain member states of the European Economic Community, a
Western European economic cooperative organization including, INTER ALIA,
France, Germany, The Netherlands and the United Kingdom. The Fund will engage in
transactions in only those futures contracts and options thereon that are traded
on a commodities exchange or a board of trade. A "sale" of a futures contract on
foreign currency means the assumption of a contractual obligation to deliver the
specified amount of foreign currency at a specified price in a specified future
month. A "purchase" of a futures contract means the assumption of a contractual
obligation to acquire the currency called for by the contract at a specified
price in a specified future month. At the time a futures contract is purchased
or sold, the Fund must allocate cash or securities as a deposit payment (initial
margin). Thereafter, the futures contract is valued daily and the payment of
"variation margin" may be required, resulting in the Fund's paying or receiving
cash that reflects any decline or increase, respectively, in the contract's
value, a process known as "marked to market."
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LIMITATIONS ON PURCHASES AND SALES OF FUTURES CONTRACTS AND OPTIONS THEREON.
UNDER THE REGULATIONS OF THE COMMODITY EXCHANGE ACT, AN INVESTMENT COMPANY
REGISTERED UNDER THE INVESTMENT COMPANY ACT IS EXCLUDED FROM THE DEFINITION OF
"COMMODITY POOL OPERATOR," SUBJECT TO COMPLIANCE WITH CERTAIN CONDITIONS. THE
EXEMPTION IS CONDITIONED UPON THE FUND'S PURCHASING AND SELLING FUTURES
CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING TRANSACTIONS, EXCEPT THAT
THE FUND MAY PURCHASE AND SELL FUTURES AND OPTIONS THEREON FOR ANY OTHER PURPOSE
TO THE EXTENT THAT THE AGGREGATE INITIAL MARGIN AND OPTION PREMIUMS DO NOT
EXCEED 5% OF THE LIQUIDATION VALUE OF THE FUND'S TOTAL ASSETS. THE FUND INTENDS
TO ENGAGE IN FUTURES TRANSACTIONS AND OPTIONS THEREON IN ACCORDANCE WITH THE
REGULATIONS OF THE CFTC. THE FUND INTENDS TO PURCHASE AND SELL STOCK INDEX
FUTURES AND OPTIONS THEREON AS A HEDGE AGAINST CHANGES, RESULTING FROM MARKET
CONDITIONS, IN THE VALUE OF SECURITIES WHICH ARE HELD IN THE FUND'S PORTFOLIO OR
WHICH THE FUND INTENDS TO PURCHASE. THE FUND INTENDS TO PURCHASE AND SELL
FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS THEREON AS A HEDGE AGAINST
CHANGES IN THE VALUE OF THE CURRENCIES TO WHICH THE FUND IS SUBJECT OR TO WHICH
THE FUND EXPECTS TO BE SUBJECT IN CONNECTION WITH FUTURE PURCHASES. THE FUND
ALSO INTENDS TO PURCHASE AND SELL STOCK INDEX FUTURES AND OPTIONS THEREON AND
FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS THEREON WHEN THEY ARE
ECONOMICALLY APPROPRIATE FOR THE REDUCTION OF RISKS INHERENT IN THE ONGOING
MANAGEMENT OF THE FUND. THE FUND ALSO INTENDS TO PURCHASE AND SELL STOCK INDEX
FUTURES AND OPTIONS THEREON FOR INCOME ENHANCEMENT.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the price of the securities being hedged is
imperfect and there is a risk that the value of the securities being hedged may
increase or decrease at a greater rate than the related futures contract,
resulting in losses to the Fund. The use of these instruments will hedge only
the currency risks associated with investments in foreign securities, not market
risks. Certain futures exchanges or boards of trade have established daily
limits on the amount that the price of a futures contract or option thereon may
vary, either up or down, from the previous day's settlement price. These daily
limits may restrict the Fund's ability to purchase or sell certain futures
contracts or options thereon on any particular day. In addition, if the Fund
purchases futures to hedge against market advances before it can invest in
common stock in an advantageous manner and the market declines, the Fund might
create a loss on the futures contract. In addition, the ability of the Fund to
close out a futures position or an option depends on a liquid secondary market.
There is no assurance that liquid secondary markets will exist for any
particular futures contract or option thereon at any particular time. See
"Investment Objective and Policies" in the Statement of Additional Information.
THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON MAY
ALSO BE LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, FOR QUALIFICATION AS A REGULATED INVESTMENT COMPANY.
SPECIAL RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the investment
adviser's prediction of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the
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possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate
securities in connection with hedging transactions. See "Investment Objectives
and Policies" and "Taxes" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
FOREIGN INVESTMENTS
The Fund may invest up to 30% of its total assets in securities of foreign
issuers. Investing in securities of foreign companies and countries involves
certain considerations and risks which are not typically associated with
investing in securities of domestic companies. Foreign companies are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign securities exchanges,
brokers and public companies than exists in the United States. Dividends and
interest paid by foreign issuers may be subject to withholding and other foreign
taxes which may decrease the net return on such investments as compared to
dividends and interest paid to the Fund by domestic companies. There may be the
possibility of expropriations, confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect assets of the
Fund held in foreign countries. In addition, a portfolio of foreign securities
may be adversely affected by fluctuations in the relative rates of exchange
between the currencies of different nations and by exchange control regulations.
There may be less publicly available information about foreign companies and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than, for example, the
New York Stock Exchange and securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S companies. Brokerage
commissions and other transaction costs of foreign securities exchanges are
generally higher than in the United States.
REPURCHASE AGREEMENTS
The Fund may on occasion enter into repurchase agreements, whereby the seller
of a security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the repurchase agreement. 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 in order to maintain its
fully collateralized position. 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. pursuant to an
order of the Securities and Exchange Commission (SEC). See "Investment Objective
and Policies--Repurchase Agreements" in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES.
The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place as much as
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
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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.
BORROWING AND SECURITIES LENDING.
The Fund may 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 securities lending.
See "Investment Objective and Policies--Lending of Portfolio Securities" in the
Statement of Additional Information.
SHORT SALES AGAINST-THE-BOX.
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable for,
without payment of any further consideration, an equal amount of the securities
of the same issuer as the securities sold short (a short sale against-the-box),
and that not more than 25% of the Fund's net assets (determined at the time of
the short sale) may be subject to such sales. Short sales will be made primarily
to defer realization of gain or loss for federal tax purposes; a gain or loss in
the Fund's long position will be offset by a gain or loss in its short position.
The Fund does not intend to have more than 5% of its net assets (determined at
the time of the short sale) subject to short sales against-the-box during the
coming year.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act), that have a readily available market are
not considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. Repurchase agreements subject to demand are deemed to
have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless the Fund and the counterparty have provided for the
Fund, at the Fund's option, to unwind the OTC option. The exercise of such an
option ordinarily would involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does not
allow the Fund to treat the assets used as "cover" as "liquid."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
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<PAGE>
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
.91% and 1.71%, respectively. See "Financial Highlights." No Class C shares were
outstanding during the fiscal year ended December 31, 1993.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE AVERAGE DAILY NET ASSETS
OF THE FUND UP TO AND INCLUDING $500 MILLION, .475 OF 1% OF THE NEXT $500
MILLION OF THE AVERAGE DAILY NET ASSETS AND .45 OF 1% OF THE AVERAGE DAILY NET
ASSETS IN EXCESS OF $1 BILLION. 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 .47% of the Fund's average net assets. See
"Manager" in the Statement of Additional Information.
As of March 31, 1994, PMF served as the manager to [37] open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to [29] closed-end investment companies with 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 THE 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 and supervises PIC's performance of such services.
The current portfolio manager of the Fund is Thomas R. Jackson, a Managing
Director of Prudential Equity Management Associates, a unit of PIC, the Fund's
Subadviser. Mr. Jackson has responsibility for daily portfolio management and
securities selection for the Fund. Mr. Jackson also serves as the portfolio
manager of the Common Stock Portfolio of the Prudential Series Fund, which is
one of the investment options in a Prudential variable life and annuity product.
Mr. Jackson joined PIC in 1990 and has over twenty-five years of professional
equity investment management experience. He was formerly co-chief investment
officer of Red Oak Advisers and Century Capital Associates, private money
management firms, where he managed pension and other accounts for institutions
and individuals. He was also with The Dreyfus Corporation where he managed and
served as president of the Dreyfus Fund. Mr. Jackson also managed an equity
pension investment group at Chase Manhattan Bank.
Mr. Jackson primarily utilizes a "value" investing style in managing the Fund.
Value investing is a disciplined approach which attempts to identify strong
companies selling at a discount from their perceived true worth. Mr. Jackson
selects stocks for the Fund's portfolio at prices which in his view are
temporarily low relative to the company's earnings, assets, cash flow and
dividends.
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<PAGE>
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW YORK,
NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A SHARES OF THE FUND. IT IS
A WHOLLY-OWNED SUBSIDIARY OF PMF.
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF
THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS B AND CLASS C
SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND
CLASS C SHARES, RESPECTIVELY. These expenses include commissions and account
servicing fees paid to, or on account of, financial advisers of Prudential
Securities and Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Fund may be sold in
that state only by dealers or other financial institutions which are registered
there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PMFD FOR ITS DISTRIBUTION-RELATED
EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The Class A Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class A shares
may be used 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% of the average daily net assets of
the Class A shares. 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. 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. PMFD has agreed to limit its distribution-related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending December 31, 1994.
For the fiscal year ended December 31, 1993, PMFD received payments of
$381,556, under the Class A Plan as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal year ended December 31, 1993, PMFD also received
approximately $2,373,000 in initial sales charges.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES FOR
ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B AND
CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of each of the Class B and Class C shares and (ii) a
service fee of .25 of 1% of
16
<PAGE>
the average daily net assets of each of the Class B and Class C shares. The
service fee is used to pay for personal service and/or the maintenance of
shareholder accounts. Prudential Securities also receives contingent deferred
sales charges from certain redeeming shareholders. See "Shareholder Guide--How
to Sell Your Shares--Contingent Deferred Sales Charges."
For the fiscal year ended December 31, 1993, Prudential Securities incurred
distribution expenses of approximately $18,649,600 under the Class B Plan and
received $15,229,923 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $1,957,000 in contingent deferred
sales charges from redemptions of Class B shares during the period. No Class C
shares were outstanding during the fiscal year ending December 31, 1993.
For the fiscal year ended December 31, 1993, the Fund paid distribution
expenses of .20% and 1.00% of the average net assets of the Class A and Class B
shares, respectively. The Fund records all payments made under the Plans as
expenses in the calculation of net investment income. No Class C shares were
outstanding during the fiscal year ended December 31, 1993.
Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the sales
of all shares of the Fund other than expenses allocable to a particular class.
The distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.
Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Directors of the Fund, including a majority of
the Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Directors), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Directors or of a majority of
the outstanding shares of the applicable class of the Fund. 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. The Fund will
not be obligated to pay expenses incurred under any plan if it is terminated or
not continued.
In addition to distribution and service fees paid by the Fund under the Class
A, Class B and Class C Plans, the Manager (or one of its affiliates) may make
payments to dealers and other persons who distribute shares of the Fund. Such
payments may be calculated by reference to the net asset value of shares sold by
such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Fund provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company (State Street or the Custodian), 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 or the Transfer Agent), 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.
17
<PAGE>
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. FOR
VALUATION PURPOSES, QUOTATIONS OF FOREIGN SECURITIES IN A FOREIGN CURRENCY ARE
CONVERTED TO U.S. DOLLAR EQUIVALENTS. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NET ASSET VALUE TO BE AS
OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. It is expected, however, that the
NAV per share of the three classes will tend to converge immediately after the
recording of dividends, to be paid by the Fund which will differ by
approximately the amount of the distribution-related expense accrual
differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS "TOTAL RETURN" (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS AND SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire period.
"Average annual" total return smooths out variations in performance and takes
into account any applicable initial or contingent deferred sales charges.
Neither "average annual" total return nor "aggregate" total return takes into
account any federal or state income taxes which may be payable upon redemption.
The "yield" refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then "annualized"; that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., other industry publications, business periodicals and
market indices. See "Performance Information" in the Statement of Additional
Information. The Fund
18
<PAGE>
will include performance data for each class of shares of the Fund in any
advertisement or information including performance data of the Fund. Further
performance information is contained in the Fund's annual and semi-annual
reports to shareholders, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
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 "DIVIDENDS, DISTRIBUTIONS AND TAXES" IN THE STATEMENT OF
ADDITIONAL INFORMATION.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs may subject the Fund to federal income taxes on certain income and gains
realized by the Fund. Under proposed Treasury regulations, the Fund would be
able to avoid such taxes and interest by electing to "mark-to-market" its
investments in PFICs (I.E. treat them as sold for fair market value at the end
of the year).
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of net
short-term capital gains in excess of net long-term capital losses, will be
taxable as ordinary income to the shareholder whether or not reinvested. Any net
long-term capital gains (I.E., the excess of net long-term capital gains over
net short-term capital losses) distributed to shareholders will be taxable as
such to the shareholders, whether or not reinvested and regardless of the length
of time a shareholder has owned his or her shares. The maximum federal income
tax long-term capital gains rate for individuals 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 paid by the Fund are eligible for the 70% dividends-received
deduction for corporate shareholders, to the extent that the Fund's income is
derived from certain dividends received from domestic corporations. Capital gain
distributions are not eligible for the 70% 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.
The Fund has obtained an opinion of counsel to the effect that the conversion
of Class B shares into Class A shares does not constitute a taxable event for
U.S. income tax purposes. However, such opinion is not binding on the Internal
Revenue Service.
Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Dividends, Distributions and
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 dividends, capital gain distributions and
redemption proceeds on the accounts of those shareholders who fail to furnish
their tax identification
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<PAGE>
numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain foreign
shareholders) with the required certifications regarding the shareholder's
status under the federal income tax law. Dividends of net investment income and
net short-term capital gains to a foreign shareholder will generally be subject
to U.S. withholding tax at the rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY,
SEMI-ANNUALLY AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET CAPITAL GAINS.
Dividends paid by the Fund with respect to each class of shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount except that each class will bear
its own distribution expenses, generally resulting in lower dividends for Class
B and Class C shares. Distributions of net capital gains, if any, will be paid
in the same amount for each class of shares. See "How the Fund Values its
Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year of both the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
WHEN THE FUND GOES "EX-DIVIDEND", THE NAV OF EACH CLASS IS REDUCED BY THE
AMOUNT OF THE DIVIDEND OR DISTRIBUTION ATTRIBUTABLE TO EACH CLASS. IF YOU BUY
SHARES JUST PRIOR TO THE EX-DIVIDEND DATE (WHICH GENERALLY OCCURS FOUR BUSINESS
DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE DIVIDEND OR
DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO YOU AS A
TAXABLE DIVIDEND OR DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE TIMING OF
DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON OCTOBER 9, 1981. THE FUND IS
AUTHORIZED TO ISSUE 750 MILLION SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C
COMMON STOCK, EACH OF WHICH CONSISTS OF 250 MILLION AUTHORIZED SHARES. Each
class of common stock represents an interest in the same assets of the Fund and
is identical in all respects except that (i) each class bears different
distribution expenses, (ii) each class has exclusive voting rights with respect
to its distribution and service plan (except that the Fund has agreed with the
SEC in connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A Plan to both Class A and Class B
shareholders), (iii) each class has a different exchange privilege and (iv) only
Class B shares have a conversion feature. See "How The Fund Is
Managed--Distributor." The Fund has received an order from the SEC permitting
the issuance and sale of multiple classes of common stock. Currently, the Fund
is offering three classes designated Class A, Class B and Class C shares. In
accordance with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series of common stock and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Board may determine.
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<PAGE>
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debt and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders. The Fund's shares do not have cumulative voting
rights for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec or
directly from the Fund through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The minimum initial
investment for Class A and Class B is $1,000 per class and $5,000 for Class C
shares. The minimum subsequent investment is $100 for all classes. All minimum
investment requirements are waived for certain retirement and employee savings
plans or custodial accounts for the benefit of minors. For purchases made
through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment requirement is $50. See "Shareholder Services" below.
THE PURCHASE PRICE IS THE NAV NEXT DETERMINED FOLLOWING RECEIPT OF AN ORDER BY
THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE WHICH, AT YOUR
OPTION, MAY BE IMPOSED EITHER (I) AT THE TIME OF PURCHASE (CLASS A SHARES) OR
(II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE "ALTERNATIVE PURCHASE
PLAN" BELOW. SEE ALSO "HOW THE FUND VALUES ITS SHARES."
Application forms can be obtained from PMFS, Prudential Securities or Prusec.
If a stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive stock certificates.
21
<PAGE>
The Fund reserves the right to reject any purchase order (including any
exchange) or to suspend or modify the continuous offering of its shares. See
"How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Equity Fund, Inc., specifying on the wire the account number assigned by PMFS
and your name and identifying the sales charge alternative (Class A, Class B or
Class C shares).
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Equity Fund, Inc.
Class A, Class B or Class C shares and your name and individual account number.
It is not necessary to call PMFS to make subsequent purchase orders utilizing
Federal Funds. The minimum amount which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C SHARES)
WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR
INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH OF TIME
YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE
PURCHASE PLAN).
<TABLE>
<CAPTION>
AMOUNT 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
--------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 0.30 of 1% (Currently being Initial sales charge waived or
5% of the public offering price charged at a rate of 0.25 of 1%) reduced for certain purchases
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the approximately seven years after
lesser of the amount invested or purchase
the redemption proceeds; declines
to zero after six years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another
of the amount invested or the class
redemption proceeds on
redemptions made within one year
of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information--Description of Common Stock") and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to
22
<PAGE>
Exchange Your Shares" below. The income attributable to each class and the
dividends payable on the shares of each class will be reduced by the amount of
the distribution fee of each class. Class B and Class C shares bear the expenses
of a higher distribution fee which will generally cause them to have higher
expense ratios and to pay lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and do
not qualify for a reduced sales charge of Class A shares, since Class A shares
are subject to an initial sales charge of [5%] and Class B shares are subject to
a CDSC of 5% which declines to zero over a 6 year period, you should consider
purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because your entire
purchase price would be invested initially in the case of Class B shares, you
should consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have your entire purchase price
invested initially because the sales charge on Class A shares is deducted at the
time of purchase.
[If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fees on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fees on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.]
ALL PURCHASES OF $1 MILLION OR MORE EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES.
SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.
23
<PAGE>
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:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction . See "Reduction and Waiver of Initial
Sales Charges -- Class A shares" in the Statement of Additional Information.
Class A shares may be purchased at NAV, without payment of an initial sales
charge, by pension, profit-sharing or other employee benefit plans qualified
under Section 401 of the Internal Revenue Code and deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue Code
(Benefit Plans), provided that the plan has existing assets of at least $1
million invested in shares of Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) or 1,000
eligible employees or members. In the case of Benefit Plans whose accounts are
held directly with the Transfer Agent and for which the Transfer Agent does
individual account record keeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant. Additional information concerning
the reduction and waiver of initial sales charges is set forth in the Statement
of Additional Information.
In addition, Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) Directors and
officers of the Fund and other Prudential Mutual Funds, (b) employees of
Prudential Securities and PMF and their subsidiaries and members of the families
of such persons who maintain an "employee related" account at Prudential
Securities or the Transfer Agent, (c) employees and special agents of Prudential
and its subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee
of .25 of 1% or less) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the client's
broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or waiver
of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No
24
<PAGE>
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.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV per share next determined
following receipt of an order by the Transfer Agent or Prudential Securities.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges" below.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV 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 Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on such Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions 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.
25
<PAGE>
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 in 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 your shares. You must notify the Fund's Transfer Agent, either
directly or through Prudential Securities or Prusec, at the time the repurchase
privilege is exercised that you are entitled to credit for the contingent
deferred sales charge previously paid. Exercise of the repurchase privilege will
not affect federal income tax treatment of any gain realized upon redemption. If
the redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, will not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES.
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the amount of
all payments by you for shares during the preceding six years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares purchased
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any CDSC will be paid to and retained by the Distributor. See "How
the Fund Is Managed--Distributor" and "Waiver of the Contingent Deferred Sales
Charges" below.
26
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
following table sets forth the rates of the CDSC applicable to redemptions of
Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
- ------------------------------------------------------------------ --------------------------
<S> <C>
First............................................................. 5.0%
Second............................................................ 4.0%
Third............................................................. 3.0%
Fourth............................................................ 2.0%
Fifth............................................................. 1.0%
Sixth............................................................. 1.0%
Seventh and thereafter............................................ None
</TABLE>
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 NAV 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 held beyond the applicable CDSC period; then of amounts
representing the cost of shares acquired prior to July 1, 1985; and finally, of
amounts representing the cost of shares held for the longest period of time
within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption of Class B shares following the death or
disability of a shareholder or, in the case of a trust account, following the
death or disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
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 (provided
that the shares were purchased prior to death or disability). The waiver does
not apply in the case of a tax-free rollover or transfer of assets, other than
one following a separation from service. In the case of Direct Account and PSI
or Subsidiary Prototype Benefit Plans, the CDSC will be waived on redemptions
which represent borrowings from such plans. Shares purchased with amounts used
to repay a loan from such plans on which a CDSC was not previously deducted will
thereafter be
27
<PAGE>
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 a
Director of the Fund.
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 waiver of the CDSC. The waiver will be granted subject to
confirmation of your entitlement.
A quantity discount may apply to redemptions of Class B shares purchased prior
to _________, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to __________, 1994" in the Statement
of Additional Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will occur during
the month following each calendar quarter and will be effected at relative net
asset value without the imposition of any additional sales charge. It is
currently anticipated that conversions will occur on the first Friday of the
month following each calendar quarter or, if not a business day, then on the
next Friday of the month.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least [seven]
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then in your account. Each time any Eligible Shares in
your account convert to Class A shares, all shares or amounts representing Class
B shares then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately [seven] years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately [seven] years from the initial purchase (i.e., $1,000
divided by $2,100 (or 47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange, or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of
28
<PAGE>
such shares. It is currently anticipated that the first conversion of Class B
shares will occur in or about January, 1995. At that time all amounts
representing Class B shares then outstanding beyond the applicable conversion
period will automatically convert to Class A shares together with all shares or
amounts representing Class B shares acquired through the automatic reinvestment
of dividends and distributions then held in your account.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service that (i) the
dividends and other distributions paid on Class A, Class B, and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B AND CLASS C SHAREHOLDERS OF THE FUND MAY EXCHANGE THEIR SHARES FOR CLASS
A, CLASS B AND CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. Any applicable CDSC payable upon the redemption of shares
exchanged will be calculated from the first day of the month after the initial
purchase excluding the time shares were held in a money market fund. Class B and
Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund. For purposes of calculating the holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded. See
"Conversion Feature--Class B Shares" above. If your investment in shares of
Prudential Mutual Funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) reach $1 million and you then hold Class B
and/or Class C shares of the Fund which are free of CDSC, you will be so
notified and offered the opportunity to exchange those shares for Class A shares
of the Fund without the imposition of any sales charge. In the case of
tax-exempt shareholders, if no response is received within 60 days of the
mailing of such notice, eligible Class B and/or Class C shares will be
automatically exchanged for Class A shares. All other shareholders must
affirmatively elect to have their eligible Class B and/or Class C shares
exchanged for Class A shares. An exchange will be treated as a redemption and
purchase for tax purposes. See "Shareholder Investment Account--Exchange
Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES YOU MUST EXCHANGE YOUR SHARES
BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
29
<PAGE>
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND SHAREHOLDERS SHOULD MAKE EXCHANGES BY
MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED
ABOVE.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
- AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec registered representative or the
Transfer Agent directly.
- TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-- Contingent Deferred Sales Charges" above.
- REPORTS TO SHAREHOLDERS. The Fund will send to 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 annual 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
are available upon request from the Fund.
SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
30
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Funds at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
TAXABLE BOND FUNDS
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible-R- Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
- -TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
-COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS...................................................... 2
FUND EXPENSES........................................................ 4
FINANCIAL HIGHLIGHTS................................................. 5
HOW THE FUND INVESTS................................................. 7
Investment Objective and Policies.................................. 7
Hedging and Income Enhancement Strategies.......................... 7
Other Investments and Policies..................................... 13
Investment Restrictions............................................ 14
HOW THE FUND IS MANAGED.............................................. 15
Manager............................................................ 15
Distributor........................................................ 16
Portfolio Transactions............................................. 17
Custodian and Transfer and Dividend Disbursing Agent............... 17
HOW THE FUND VALUES ITS SHARES....................................... 18
HOW THE FUND CALCULATES PERFORMANCE.................................. 18
TAXES, DIVIDENDS AND DISTRIBUTIONS................................... 19
GENERAL INFORMATION.................................................. 20
Description of Common Stock........................................ 20
Additional Information............................................. 21
SHAREHOLDER GUIDE.................................................... 21
How to Buy Shares of the Fund...................................... 21
Alternative Purchase Plan.......................................... 22
How to Sell Your Shares............................................ 25
Conversion Feature--Class B Shares................................. 28
How to Exchange Your Shares........................................ 29
Shareholder Services............................................... 30
THE PRUDENTIAL MUTUAL FUND FAMILY.................................... A-1
</TABLE>
-------------------------------------------
MF101A 4331465
Class A: 744316-10-0
CUSIP Nos.: Class B: 744316-20-9
Class C:
PRUDENTIAL
EQUITY FUND, INC.
- -------------------
[LOGO]
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED , 1994
Prudential Equity Fund, Inc., (the Fund), is an open-end diversified
management investment company whose investment objective is long-term growth of
capital. The Fund will seek to achieve this objective by investing primarily in
common stocks of major, established corporations which, in the opinion of its
investment adviser, are believed to be in sound financial condition and to have
prospects of price appreciation greater than broadly based stock indices. The
Fund's purchase and sale of put and call options and related short-term trading
may result in a high portfolio turnover rate. These activities may be considered
speculative and may result in higher risks and costs to the Fund. The Fund may
also buy and sell stock index options and futures for the purpose of hedging its
securities portfolio pursuant to limits described herein. See "Investment
Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated , 1994, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
--------- -------------------
<S> <C> <C>
General Information and History.................................................................. B-2 16
Investment Objective and Policies................................................................ B-2 7
Investment Restrictions.......................................................................... B-11 11
Directors and Officers........................................................................... B-12 11
Manager.......................................................................................... B-15 11
Distributor...................................................................................... B-16 12
Portfolio Transactions and Brokerage............................................................. B-18 13
Purchase and Redemption of Fund Shares........................................................... B-19 17
Shareholder Investment Account................................................................... B-22 24
Net Asset Value.................................................................................. B-25 14
Performance Information.......................................................................... B-26 14
Dividends, Distributions and Taxes............................................................... B-27 15
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants.................... B-29 13
Financial Statements............................................................................. B-30 --
Report of Independent Accountants................................................................ B-40 --
Tax Information.................................................................................. B-40
</TABLE>
- --------------------------------------------------------------------------------
MF101B
<PAGE>
GENERAL INFORMATION AND HISTORY
On May 12, 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 from Chancellor
Equity Fund, Inc. to Prudential-Bache Equity Fund, Inc. The Fund has been doing
business under the name Prudential Equity Fund since March 1991. On November 18,
1993, the shareholders of the Fund approved an amendment to the Fund's Articles
of Incorporation to change the Fund's name to Prudential Equity Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. The Fund
attempts to achieve such objective by investing primarily in common stocks of
major, established corporations which, in the opinion of the Fund's investment
adviser, are believed to be in sound financial condition and to have prospects
of price appreciation greater than broadly based stock indices. The Fund may
also invest in preferred stocks and bonds, which have either attached warrants
or a conversion privilege into common stocks. For a further description of the
Fund's investment objective and policies, see "How the Fund Invests-- Investment
Objective and Policies" in the Prospectus.
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS, OPTIONS ON STOCK INDICES,
STOCK INDEX FUTURES AND OPTIONS THEREON
The Fund may purchase put options only on equity securities held in its
portfolio and write call options on stocks only if they are covered, and such
call options must remain covered so long as the Fund is obligated as a writer.
The Fund has undertaken with certain state securities commissions that, so long
as shares of the Fund are registered in those states, it will not purchase put
and call options on stock indices if, after any such purchase, the aggregate
premiums paid for such options would exceed 20% of the Fund's total net assets.
The Fund may purchase put and call options and write covered call options on
equity securities traded on securities exchanges, on NASDAQ or in the
over-the-counter market (OTC Options).
The Fund may purchase and write put and call options on stock indices traded
on securities exchanges, on NASDAQ or in the over-the-counter market.
CALL OPTIONS ON STOCK. The Fund may, from time to time, write call options
on its portfolio securities. The Fund may write only call options which are
"covered," meaning that the Fund either owns the underlying security or has an
absolute and immediate right to acquire that security, without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian), upon conversion or exchange of other securities currently
held in its portfolio. In addition, the Fund will not permit the call to become
uncovered prior to the expiration of the option or termination through a closing
purchase transaction as described below. If the Fund writes a call option, the
purchaser of the option has the right to buy (and the Fund has the obligation to
sell) the underlying security at the exercise price throughout the term of the
option. The amount paid to the Fund by the purchaser of the option is the
"premium." The Fund's obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if the Fund were to effect a "closing purchase transaction"
through the purchase of an equivalent option on an exchange. There can be no
assurance that a closing purchase transaction can be effected.
The Fund would not be able to effect a closing purchase transaction after it
had received notice of exercise. In order to write a call option, the Fund is
required to comply with the rules of The Options Clearing Corporation and the
various exchanges with respect to collateral requirements. The Fund may not
purchase call options on individual stocks except in connection with a closing
purchase transaction. It is possible that the cost of effecting a closing
purchase transaction may be greater than the premium received by the Fund for
writing the option.
PUT OPTIONS ON STOCK. The Fund may also purchase put and call options. If
the Fund purchases a put option, it has the option to sell a given security at a
specified price at any time during the term of the option. If the Fund purchases
a call option, it has the option to buy a security at a specified price at any
time during the term of the option.
Purchasing put options may be used as a portfolio investment strategy when
the investment adviser perceives significant short-term risk but substantial
long-term appreciation for the underlying security. The put option acts as an
insurance policy, as it protects against significant downward price movement
while it allows full participation in any upward movement. If the Fund is
holding a stock which it feels has strong fundamentals, but for some reason may
be weak in the near term, it may purchase a put
B-2
<PAGE>
on such security, thereby giving itself the right to sell such security at a
certain strike price throughout the term of the option. Consequently, the Fund
will exercise the put only if the price of such security falls below the strike
price of the put. The difference between the put's strike price and the market
price of the underlying security on the date the Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If during the period of the option
the market price for the underlying security remains at or above the put's
strike price, the put will expire worthless, representing a loss of the price
the Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.
STOCK INDEX OPTIONS. Except as described below, the Fund will write call
options on indices only if on such date it holds a portfolio of stocks at least
equal to the value of the index times the multiplier times the number of
contracts. When the Fund writes a call option on a broadly-based stock market
index, the Fund will segregate or put into escrow with its Custodian, or pledge
to a broker as collateral for the option, any combination of cash, cash
equivalents or "qualified securities" with a market value at the time the option
is written of not less than 100% of the current index value times the multiplier
times the number of contracts.
If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, one or more "qualified securities," all of which are
stocks of issuers in such industry or market segment, with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts.
If at the close of business on any day the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, the Fund will so
segregate, escrow or pledge an amount in cash, Treasury bills or other
high-grade short-term obligations equal in value to the difference. In addition,
when the Fund writes a call on an index which is in-the-money at the time the
call is written, the Fund will segregate with its Custodian or pledge to the
broker as collateral cash, U.S. Government or other high-grade short-term debt
obligations equal in value to the amount by which the call is in-the-money times
the multiplier times the number of contracts. Any amount segregated pursuant to
the foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a securities exchange or listed on NASDAQ against which the
Fund has not written a stock call option and which has not been hedged by the
Fund by the sale of stock index futures. However, if the Fund holds a call on
the same index as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, Treasury bills or other high-grade short-term obligations in a
segregated account with its Custodian, it will not be subject to the
requirements described in this paragraph.
STOCK INDEX FUTURES. The Fund will purchase and sell stock index futures
contracts as a hedge against changes resulting from market conditions in the
values of securities which are held in the Fund's portfolio or which it intends
to purchase or when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. In instances involving the
purchase of stock index futures contracts by the Fund, an amount of cash, cash
equivalents and U.S. Government securities, equal to the market value of the
futures contracts, will be deposited in a segregated account with the Fund's
Custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. In the case of options on stock
index futures, the holder of the option pays a premium and receives the rights,
upon exercise of the option at a specified price during the option period, to
assume a position in a stock index futures contract (a long position if the
option is a call and a short position if the option is a put). If the option is
exercised by the holder before the last trading day during the option period,
the option writer delivers the futures position, as well as any balance in the
writer's futures margin account, which represents the amount by which the market
price of the stock index futures contract at exercise exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option on
the stock index future. If it is exercised on the last trading day, the option
writer delivers to the option holder cash in an amount equal to the difference
between the option exercise price and the closing level of the relevant index on
the date the option expires.
LIMITATIONS ON THE PURCHASE AND SALE OF STOCK INDEX FUTURES AND OPTIONS ON
STOCK INDEX FUTURES. Under regulations of the Commodity Exchange Act, investment
companies registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), are exempt from the definition of "commodity pool
operator", subject to compliance with certain
B-3
<PAGE>
conditions. The exemption is conditioned upon the Fund's purchasing and selling
futures contracts and options thereon for BONA FIDE hedging transactions, except
that the Fund may purchase and sell futures and options thereon for any other
purpose to the extent that the aggregate initial margin and option premiums do
not exceed 5% of the liquidation value of the Fund's total assets.
RISKS OF TRANSACTIONS IN STOCK OPTIONS. Writing of options involves the risk
that there will be no market in which to effect a closing transaction. An
exchange traded option may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
exchange traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange may exist. In such event it might not be
possible to effect closing transactions in particular exchange-traded options,
with the result that the Fund would have to exercise its options in order to
realize any profit and would incur brokerage commissions upon the exercise of
call options and upon the subsequent disposition of underlying securities
acquired through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If the Fund as a covered call option
writer is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.
In the case of OTC options, it is not possible to effect a closing
transaction in the same manner as exchange-traded options because a clearing
corporation is not interposed between the buyer and seller of the option. When
the Fund writes an OTC option, it generally will be able to close out the OTC
option prior to its expiration only by entering into a closing purchase
transaction with the dealer with which the Fund originally wrote the OTC option.
Any such cancellation, if agreed to, may require the Fund to pay a premium to
the counterparty. While the Fund will enter into OTC options only with dealers
which agree to, and which are expected to be capable of, entering into closing
transactions with the Fund, there can be no assurance that the Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
Until the Fund is able to effect a closing purchase transaction in a covered OTC
call option the Fund has written, it will not be able to liquidate securities
used as cover until the option expires or is exercised or different cover is
substituted. Alternatively, the Fund could write an OTC call option to, in
effect, close an existing OTC call option or write an OTC put option to close
its position on an OTC put option. However, the Fund would remain exposed to
each counterparty's credit risk on the put or call until such option is
exercised or expires. There is no guarantee that the Fund will be able to write
put or call options, as the case may be, that would effectively close an
existing position. In the event of insolvency of the counterparty, the Fund may
be unable to liquidate an OTC option.
The Fund may also purchase a "protective put," I.E., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value. The
loss to the Fund is limited to the premium paid for, and transaction costs in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
the security underlying the put rises, the profit the Fund realizes on the sale
of the security will be reduced by the premium paid for the put option less any
amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices in the
over-the-counter market.
As discussed above, an OTC option is a direct contractual relationship with
another party. Consequently, in entering into OTC options, the Fund will be
exposed to the risk that the counterparty will default on, or be unable to
complete, due to bankruptcy or otherwise, its obligation on the option. In such
an event, the Fund may lose the benefit of the transaction. Consequently, the
value of an OTC option to the Fund is dependent upon the financial viability of
the counterparty. If the Fund decides to enter into transactions in OTC options,
the Subadviser will take into account the credit quality of counterparties in
order to limit the risk of default by the counterparty.
OTC options may also be illiquid securities with respect to which no
secondary market exists. The Fund may not be able to effect closing transactions
for such options. The staff of the SEC has taken the position that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities unless the Fund and the counterparty have provided for the Fund at
its option to unwind the OTC option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the Fund
to treat the assets used as "cover" as "liquid".
RISKS OF OPTIONS ON INDICES. The Fund's purchase and sale of options on
indices will be subject to risks described above under "Risks of Transactions in
Stock Options." In addition, the distinctive characteristics of options on
indices create certain risks that are not present with stock options.
B-4
<PAGE>
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. The investment adviser currently uses such techniques in
conjunction with the management of other mutual funds.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also 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, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index, for example, the S&P 100
or S&P 500 index option.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until, in the investment
adviser's opinion, the market for such options has developed sufficiently that
the risk in connection with these transactions is no greater than the risk in
connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described above under "Limitations on the Purchase and Sale of
Stock Options, Options on Stock Indices, Stock Index Futures and Options
Thereon."
Price movements in the Fund's portfolio probably will not correlate
precisely 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. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its 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 date the exercise notice
is filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which in
either case would occur no earlier than the day following the day the exercise
notice was filed.
B-5
<PAGE>
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDICES. If the Fund holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiple) to the assigned writer. Although the Fund may be able to minimize this
risk by withholding exercise instructions until just before the daily cutoff
time or by selling rather than exercising an option when the index level is
close to the exercise price, it may not be possible to eliminate this risk
entirely because the cutoff times for index options may be earlier than those
fixed for other types of options and may occur before definitive closing index
values are announced.
RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES. There are several
risks in connection with the use of options on stock index futures contracts as
a hedging device. The correlation between the price of the futures contract and
the movements in the index may not be perfect. Therefore, a correct forecast of
interest rates and other factors affecting markets for securities may still not
result in a successful hedging transaction.
Futures prices often are extremely volatile so successful use of options on
stock index futures contracts by the Fund is also subject to the ability of the
Fund's investment adviser to predict correctly movements in the direction of
markets, changes in supply and demand, interest rates, international political
and economic policies, and other factors affecting the stock market generally.
For example, if the Fund has hedged against the possibility of a decrease in an
index which would adversely affect the price of securities in its portfolio and
the price of such securities increases instead, then the Fund will lose part or
all of the benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash to meet daily variation margin requirements, it
may need to sell securities to meet such requirements at a time when it is
disadvantageous to do so. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market.
The hours of trading of options on stock index futures contracts may not
conform to the hours during which the Fund may trade the underlying securities.
To the extent the futures markets close before the securities markets,
significant price and rate movements can take place in the securities markets
that cannot be reflected in the futures markets.
Options on stock index futures contracts are highly leveraged and the
specific market movements of the contract underlying an option cannot be
predicted. Options on futures must be bought and sold on exchanges. Although the
exchanges provide a means of selling an option previously purchased or of
liquidating an option previously written by an offsetting purchase, there can be
no assurance that a liquid market will exist for a particular option at a
particular time. If such a market does not exist, the Fund, as the holder of an
option on futures contracts, would have to exercise the option and comply with
the margin requirements for the underlying futures contract to realize any
profit, and if the Fund were the writer of the option, its obligation would not
terminate until the option expired or the Fund was assigned an exercise notice.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Since investments in foreign companies will usually involve currencies of
foreign countries, and since the Fund may hold funds in bank deposits in foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund will conduct
its foreign currency exchange transactions on a spot (I.E., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades.
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the
B-6
<PAGE>
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when the Investment Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. The Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will thereby be served. The Fund's Custodian will
place cash or liquid equity or debt securities into a segregated account of the
Fund in an amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the value
of the Fund's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities which
are unrelated to exchange rates. It simply establishes a rate of exchange which
one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
B-7
<PAGE>
RISKS OF TRANSACTIONS IN OPTIONS ON FOREIGN CURRENCIES
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profits
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying currencies acquired through the
exercise of call options or upon the purchase of underlying currencies for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying currency until the option expires or it delivers the
underlying currency upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
The Fund intends to purchase and sell only those options which are cleared by a
clearinghouse whose facilities are considered to be adequate to handle the
volume of options transactions.
RISKS OF OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies involve the currencies of two nations and,
therefore, developments in either or both countries can affect the values of
options on foreign currencies. Risks include those described in the Prospectus
under "How the Fund Invests--Other Investments and Policies," including
government actions affecting currency valuation and the movements of currencies
from one country to another. The quality of currency underlying option contracts
represents odd lots in a market dominated by transactions between banks; this
can mean extra transaction costs upon exercise. Options markets may be closed
while round-the-clock interbank currency markets are open, and this can create
price and rate discrepancies.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS ON FOREIGN CURRENCIES
There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. Therefore, a correct forecast of currency rates, market trends or
international political trends by the Manager or Subadviser may still not result
in a successful hedging transaction.
Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close a futures position. In the
event the Fund could not close a futures position and the value of such position
declined, the Fund would be required to continue to make daily cash payments of
variation margin. There is no guarantee that the price movements of the
portfolio securities denominated in foreign currencies will, in fact, correlate
with the price movements in the futures contracts and thus provide an offset to
losses on a futures contract. Currently, futures contracts are available on the
Australian Dollar, British Pound, Canadian Dollar, French Franc, Japanese Yen,
Swiss Franc, DeutscheMark and Eurodollars.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's Manager or Subadviser to predict correctly movements in
the direction of markets and other factors affecting currencies generally. For
example, if the Fund has hedged against the possibility of an increase in the
price of securities in its portfolio and price of such securities increases
B-8
<PAGE>
instead, the Fund will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash to meet daily
variation margin requirements, it may need to sell securities to meet such
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currently options are
available with respect to futures contracts on the Australian Dollar, British
Pound, Canadian Dollar, French Franc, Japanese Yen, Swiss Franc, DeutscheMark
and Eurodollar.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
LIMITATIONS ON PURCHASE AND SALE OF OPTIONS ON FOREIGN CURRENCIES AND FUTURES
CONTRACTS ON FOREIGN CURRENCIES
The Fund will write put options on foreign currencies and futures contracts
on foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or short-term investments equal to the aggregate
exercise price of the puts. The Fund will not (a) write puts having aggregate
exercise prices greater than 25% of total net assets; or (b) purchase (i) put
options on currencies or futures contracts on foreign currencies or (ii) call
options on foreign currencies if, after any such purchase, the aggregate
premiums paid for such options would exceed 10% of the Fund's total net assets.
The Fund intends to engage in futures contracts and options on futures
contracts as a hedge against changes in the value of the currencies to which the
Fund is subject or to which the Fund expects to be subject in connection with
future purchases. The Fund also intends to engage in such transactions when they
are economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund.
POSITION LIMITS
Transactions by the Fund in futures contracts and options will be subject to
limitations, if any, established by each of the exchanges, boards of trade or
other trading facilities (including NASDAQ) governing the maximum number of
options in each class which may be written or purchased by a single investor or
group of investors acting in concert, regardless of whether the options are
written on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of futures contracts and options which the Fund may
write or purchase may be affected by the futures contracts and options written
or purchased by other investment advisory clients of the Adviser. An exchange,
board of trade or other trading facility may order the liquidations of positions
found to be in excess of these limits, and it may impose certain other
sanctions.
PORTFOLIO TURNOVER
The Fund has no fixed policy with respect to portfolio turnover; however, as
a result of the Fund's investment policies, its portfolio turnover rate may
exceed 100% although it is not expected to exceed 200%. The portfolio turnover
rate is, generally, the percentage computed by dividing the lesser of portfolio
purchases or sales by the average value of the portfolio. To the extent that the
Fund engages in short-term trading in attempting to achieve its objective, it
may increase its turnover rate and incur greater brokerage commissions and other
transaction costs, which are borne directly by the Fund. See "Portfolio
Transactions and Brokerage."
B-9
<PAGE>
LENDING OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to broker-dealers, banks or other
recognized institutional borrowers of securities, provided that the borrower at
all times maintains cash or equivalent collateral or secures a letter of credit
in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or interest paid on
such securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or secured a letter of credit.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not have
the right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment. The Fund does not intend to lend its portfolio securities during the
coming year.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act), that have a readily available market are
not considered illiquid for purposes of this limitation. The Subadviser will
monitor the liquidity of such restricted securities under the supervision of the
Board of Directors. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
The staff of the SEC has also taken the position that purchased
over-the-counter options and the assets used as "cover" for written
over-the-counter options are illiquid securities unless the Fund and the
counterparty have provided for the Fund at its option to unwind the OTC option.
The exercise of such an option ordinarily would involve the payment by the Fund
of an amount designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid".
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds typically have not held a significant amount of
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. The
investment adviser anticipates that the market for certain restricted securities
such as foreign convertible securities will expand further as a result of this
new regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the NASD.
The investment adviser will monitor the liquidity of restricted securities
in the Fund's portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser will consider, INTER ALIA,
the following factors:
1. the frequency of trades and quotes for the security;
B-10
<PAGE>
2. the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers;
3. dealer undertakings to make a market in the security; and
4. the nature of the security and the nature of the marketplace trades
(E.G., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies, which cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. A "majority of the Fund's outstanding voting securities"
means the lesser of (1) 67% of the Fund's shares represented at a meeting at
which more than 50% of the outstanding shares are present in person or
represented by proxy, or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer.
2. Make short sales of securities except short sales against-the-box (but
the Fund may obtain such short-term credits as may be necessary for the
clearance of transactions).
3. Concentrate its investments in any one industry (no more than 25% of the
Fund's total assets will be invested in any one industry).
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 the purpose of this restriction,
obligations of the Fund to Directors pursuant to deferred compensation
arrangements, the purchase or sale of securities on a when-issued or delayed
delivery basis, the purchase and sale of options, futures contracts and forward
foreign currency exchange contracts and collateral arrangements with respect to
the purchase and sale of options, futures contracts, options on futures
contracts and forward foreign currency exchange contracts are not deemed to be
the issuance of a senior security or a pledge of assets.
5. Purchase any security if as a result the Fund would then hold more than
10% of the outstanding voting securities of any one issuer.
6. Purchase any security if as a result the Fund would then have more than
5% of its total assets (taken at current value) invested in securities of
companies (including predecessors) less than three years old.
7. Buy or sell commodities or commodity contracts or real estate or
interests in real estate except that the Fund may purchase and sell stock index
futures contracts, options thereon and forward foreign currency exchange
contracts and securities which are secured by real estate and securities of
companies which invest or deal in real estate.
8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
9. Make investments for the purpose of exercising control or management.
10. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which not more than 10% of its total assets (taken at current value)
would be invested in such securities, or except as part of a merger,
consolidation or other acquisition.
11. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stock of companies
which invest in or sponsor such programs.
12. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (such loans being limited to 10% of the Fund's total
assets). (The purchase of a portion of an issue of securities distributed
publicly, whether or not the purchase is made on the original issuance, is not
considered the making of a loan.)
B-11
<PAGE>
In order to comply with certain state "blue sky" restrictions, the Fund will
not as a matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. 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 Fund may not purchase securities on margin, except for such short-term
credits as are necessary for the clearance of purchases and sales of portfolio
securities.
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.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- ------------------------------------------------------------------------
<S> <C> <C>
Edward D. Beach Director President and Director of BMC Fund,
c/o Prudential Inc.; formerly Vice Chairman of
Mutual Fund Broyhill Furniture Industries, Inc.;
Management, Inc. Certified Public Accountant; Secretary
One Seaport and Treasurer of Broyhill Family
Plaza Foundation Inc.; President and Director
New York, NY of The High Yield Plus Fund, Inc. and
The First Financial Fund, Inc.;
Director of The Global Government Plus
Fund, Inc. and The Global Yield Fund,
Inc.
Eugene C. Dorsey Director Retired President, Chief Executive
c/o Prudential Officer and Trustee of the Gannett
Mutual Foundation (now Freedom Forum); former
Fund Management, Publisher of four Gannett newspapers
Inc. and Vice President of Gannett Company;
One Seaport past Chairman, Independent Sector
Plaza (national coalition of philanthropic
New York, NY organizations); former Chairman of the
American Council for the Arts; Director
of the Advisory Board of Chase
Manhattan Bank of Rochester.
Delayne D. Gold Director Marketing and Management Consultant.
c/o Prudential
Mutual
Fund Management,
Inc.
One Seaport
Plaza
New York, NY
*Harry A. Director Senior Director (since January 1986) of
Jacobs, Jr. Prudential Securities; formerly Interim
One Seaport Chairman and Chief Executive Officer of
Plaza Prudential Mutual Fund Management, Inc.
New York, NY (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 the
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.
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- ------------------------------------------------------------------------
<S> <C> <C>
*Lawrence C. President and Vice Chairman of PMF (since 1988);
McQuade Director Managing Director, Investment Banking
One Seaport of Prudential Securities (1988-1991);
Plaza Director of Quixote Corporation (since
New York, NY February 1992); Director of BUNZL, PLC
(since June 1991); formerly Director of
Crazy Eddie Inc. (1987-1990) and
Director of Kaiser Tech., Ltd., and
Kaiser Aluminum and Chemical Corp.
(March 1987-November 1988); formerly
Executive Vice President and Director
of W.R. Grace & Co.; President and
Director of The High Yield Income Fund,
Inc., The Global Yield Fund, Inc. and
The Global Government Plus Fund, Inc.
Thomas T. Mooney Director President of Greater Rochester Metro
c/o Prudential Chamber of Commerce; former Rochester
Mutual City Manager; Trustee of Center for
Fund Management, Governmental Research, Inc.; Director
Inc. of Blue Cross of Rochester, Monroe
One Seaport County Water Authority, Rochester Jobs,
Plaza Inc., Northeast Midwest Institute,
New York, NY Executive Service Corps of Rochester
and Monroe County Industrial
Development Corporation; Director of
The First Financial Fund, Inc., The
Global Government Plus Fund, Inc., The
Global Yield Fund, Inc. and The High
Yield Plus Fund, Inc.
Thomas H. Director President, O'Brien Associates (financial
O'Brien and management consultants) (since
c/o Prudential April 1984); formerly, President of
Mutual Jamaica Water Securities Corp. (holding
Fund Management, company) (February 1989-August 1990);
Inc. Director (September 1987-April 1991)
One Seaport and Chairman of the Board and Chief
Plaza Executive Officer (September
New York, NY 1987-February 1989) of Jamaica Water
Supply Company; formerly, Director of
TransCanada Pipelines U.S.A. Ltd.
(1984-June 1989) and Winthrop
University Hospital (November 1978-June
1988); Director of Ridgewood Savings
Bank and Yankee Energy System, Inc.;
Secretary and Trustee of Hofstra
University.
*Richard A. Director President, Chief Executive Officer and
Redeker Director (since October 1993) of PMF;
One Seaport Executive Director and Member of the
Plaza Operating Committee (since October
New York, NY 1993) of Prudential Securities
Incorporated (Prudential Securities);
Director (since October 1993) of
Prudential Securities Group, Inc.
(PSG); formerly Senior Executive Vice
President and Director of Kemper
Financial Services, Inc. (September
1978-September 1993); Director of The
Global Government Plus Fund, Inc. and
The High Yield Income Fund, Inc.
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- ------------------------------------------------------------------------
<S> <C> <C>
Nancy H. Teeters Director Economist; formerly Vice President and
c/o Prudential Chief Economist (March 1986-June 1990)
Mutual and Director of Economics (July
Fund Management, 1984-February 1986), International
Inc. Business Machines Corporation
One Seaport (manufacturer of computers); Member of
Plaza the Board of Governors of the Horace H.
New York, NY Rackman School of Graduate Studies of
the University of Michigan; Director of
Global Utility Fund, Inc., The First
Financial Fund, Inc. and The Global
Yield Fund, Inc.
David W. Drasnin Vice President Vice President and Branch Manager of
39 Public Square Prudential Securities.
Wilkes-Barre, PA
Robert F. Gunia Vice President Chief Administrative Officer (since July
One Seaport 1990), Director (since January 1989)
Plaza and Executive Vice President, Treasurer
New York, NY and Chief Financial Officer (since June
1987) of PMF; Senior Vice President
(since March 1987) of Prudential
Securities; Vice President and Director
of The Asia Pacific Fund, Inc. (since
1989).
S. Jane Rose Secretary Senior Vice President (since January
One Seaport 1991) and Senior Counsel (since June
Plaza 1987) and First Vice President (June
New York, NY 1987-December 1990) of PMF; Senior Vice
President and Senior Counsel (since
July 1992) of Prudential Securities.
Susan C. Cote Treasurer and Senior Vice President (since January
One Seaport Principal 1989) of PMF; Senior Vice President
Plaza Financial and (since January 1992) and Vice President
New York, NY Accounting (January 1986-December 1991) of
Officer Prudential Securities.
Deborah A. Docs Assistant Vice President (since January 1993),
One Seaport Secretary Associate Vice President (January
Plaza 1990-December 1992), Assistant General
New York, NY Counsel (since November 1991),
Assistant Vice President (January
1989-December 1989) and Legal Associate
(May 1987-October 1991) of PMF; Vice
President (since January 1993),
Associate Vice President (January
1992-December 1992) and Associate
General Counsel (January 1993) of
Prudential Securities.
<FN>
- ------------------------
* "Interested" director as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PMF.
</TABLE>
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.
The Fund pays each of its Directors who is not an affiliated person of PMF
annual compensation of $7,500, in addition to certain out-of-pocket expenses.
Mr. O'Brien receives his Director's fee pursuant to a deferred fee agreement
with the Fund. Under the terms of the agreement, the Fund accrues daily the
amount of such Director's fee 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 (the Fund rate). Payment of the interest
so accrued is also deferred and becomes payable at the option of the Director.
The Fund's obligation to make payments of deferred Director's fees, together
with interest thereon, is a general obligation of the Fund.
B-14
<PAGE>
As of March 31, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock of the Fund.
As of March 31, 1994, Prudential Securities was the record holder for other
beneficial owners of 90,279,496 shares (or 60.5%) of the outstanding common
stock of the Fund. In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy materials to the
beneficial owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the "Prudential Mutual Funds." See "How the Fund is Managed" in the Prospectus.
As of March 31, 1994, PMF managed and/or administered open-end and closed-end
management investment companies with assets of approximately $49 billion and,
according to the Investment Company Institute, as of December 31, 1993, the
Prudential Mutual Funds were the 12th largest family of mutual funds in the
United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and Prudential Mutual Fund Services, Inc.
(PMFS or the Transfer Agent), the Fund's transfer and dividend disbursing agent.
The management services of PMF for the Fund are not exclusive under the terms of
the Management Agreement and PMF is free to, and does, render management
services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .50 of 1% of the Fund's average daily net assets up to and
including $500 million, .475 of 1% of the Fund's average daily net assets from
$500 million to $1 billion and .45 of 1% of the Fund's average daily net assets
in excess of $1 billion. The fee is computed daily and payable monthly. 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 to PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid by
PMF to the Fund. No such reductions were required during the fiscal year ended
December 31, 1993. Currently, the Fund believes that the most restrictive
expense limitation of state securities commissions is 2 1/2% of the Fund's
average daily net assets up to $30 million, 2% of the next $70 million of such
assets and 1 1/2% of such assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the subadvisory agreement between PMF and PIC (the Subadvisory
Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the
B-15
<PAGE>
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 Securities and Exchange Commission, registering the Fund and
qualifying its shares under state securities laws, including the preparation and
printing of the Fund's registration statements and prospectuses for such
purposes, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders in the amount necessary for distribution to the shareholders, (l)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business and (m) distribution
fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors of the Fund, including a majority 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 May 4, 1994 and by
shareholders of the Fund on April 29, 1988.
For the fiscal years ended December 31, 1993, 1992 and 1991, PMF received
management fees of $8,086,967, $5,565,827 and $3,997,818, respectively.
PMF has entered into the Subadvisory Agreement with PIC, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of such services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the Subadvisory
Agreement, on May 4, 1994, 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 (The Prudential Investment Corporation) are
subsidiaries of The Prudential Insurance Company of America (Prudential) which,
as of December 31, 1993, 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 third 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, One Seaport Plaza, New York, New York 10292, acts as the
distributor of the Class B and Class C shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively the Distributor) incur the expenses of distributing the Fund's
Class A, Class B and Class C shares, respectively. 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 October 19, 1989, the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no
B-16
<PAGE>
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 May 6, 1993, the Board of Directors,
including a majority of the Rule 12b-1 Directors, at a meeting called for the
purpose of voting on each Plan, approved modifications to the Fund's Class A and
Class B Plans and Distribution Agreements to conform them to recent amendments
to the National Association of Securities Dealers, Inc. (NASD) maximum sales
charge rule described below. As so modified, the Class A Plan provides that (i)
up to .25 of 1% of the average daily net assets of the Class A shares may be
used to pay for personal service and the maintenance of shareholder accounts
(service fee) and (ii) total distribution fees (including the service fee of .25
of 1%) may not exceed .30 of 1%. As so modified, the Class B Plan provides that
(i) up to .25 of 1% of the average daily net assets of the Class B shares may be
paid as a service fee and (ii) up to .75 of 1% (not including the service fee)
of the average daily net assets of the Class B shares (asset-based sales charge)
may be used as reimbursement for distribution-related expenses with respect to
the Class B shares. The Plans were last approved by the Board of Directors,
including a majority of the Rule 12b-1 Directors, on May 6, 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. On May 6,
1993, the Board of Directors, including a majority of the Rule 12b-1 Directors,
at a meeting called for the purpose of voting on each Plan, adopted a plan of
distribution for the Class C shares of the Fund and approved further amendments
to the plans of distribution for the Fund's Class A and Class B shares changing
them from reimbursement type plans to compensation type plans. The Plans were
last approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on May 6, 1993. The Class A Plan, as amended, was approved by Class A
and Class B shareholders, and the Class B Plan, as amended, was approved by
Class B shareholders on June 23, 1994. The Class C Plan was approved by the sole
shareholder of Class C shares on _____, 1994.
CLASS A PLAN. For the year ended December 31, 1993, PMFD received payments
of $381,600 under the Class A Plan as reimbursement of expenses related to the
distribution of Class A shares. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal year ended December 31, 1993, PMFD also received
approximately $2,373,000 in initial sales charges with respect to sales of Class
A shares.
CLASS B PLAN. For the fiscal year ended December 31, 1993, Prudential
Securities received approximately $15,229,900 from the Fund under the Class B
Plan. It is estimated that Prudential Securities spent approximately $18,649,600
on behalf of the Fund during such period. It is estimated that of the latter
amount, approximately 0.5% ($86,300) was spent on printing and mailing of
prospectuses to other than current shareholders; 0.5% ($86,200) on sales
material and advertising; 15.1% ($2,825,000) was spent 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
Class B shares; 2.7% ($505,100) on interest and/or carrying charges; and 81.2%
($15,147,000) was spent on the aggregate of (i) commission credits to Prudential
Securities branch offices, for payments of commissions and account servicing
fees to financial advisers (37.0% or $6,902,400) and (ii) an allocation on
account of overhead and other branch office distribution-related expenses (44.2%
or $8,244,600). The term "overhead and other branch office distribution-related
expenses" represents (a) the expenses of operating the 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.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus. The amount of distribution expenses
reimbursable by the Class B shares of the Fund is reduced by the amount of such
contingent deferred sales charges. For the year ended December 31, 1993,
Prudential Securities received approximately $1,957,000 in contingent deferred
sales charges.
CLASS C PLAN. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the Prospectus. Prior to the date of this Statement of
Additional Information, no distribution expenses were incurred under the Class C
Plan.
B-17
<PAGE>
The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors, including a majority vote of the Rule 12b-1 Directors,
cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
30 days' written notice to any other party to the Plans. The Plans may not be
amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class
(by both Class A and Class B shareholders, voting separately, in the case of
material amendments to the Class A Plan), and all material amendments are
required to be approved by the Board of Directors in the manner described above.
Each Plan will automatically terminate in the event of its assignment. The Fund
will not be contractually obligated to pay expenses incurred under any Plan if
it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report includes an itemization of
the distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of the Rule
12b-1 Directors who are not interested persons of the Fund shall be committed to
the the Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was last approved by the Board of Directors, including a
majority of the Rule 12b-1 Directors, on May 4, 1994.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. In the case of Class B shares, interest charges on unreimbursed
distribution expenses equal to the prime rate plus one percent per annum may be
added to the 6.25% limitation. 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 shares of the Fund may not exceed .75 of 1%
per class. The 6.25% limitation applies to each class of the Fund's shareholders
rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class, all sales charges on shares of
that class would be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities, options
on such securities and stock indices and stock index futures contracts and
options thereon for the Fund, the selection of brokers, dealers and futures
commission merchants to effect the transactions and the negotiation of brokerage
commissions, if any. For purposes of this section, the term "Manager" includes
the "Subadviser". Purchases and sales of securities, options and futures on an
exchange or board of trade are effected through brokers or futures commission
merchants who charge a negotiated commission for their services. Orders may be
directed to any broker or futures commission merchant 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 accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund will not deal with Prudential
Securities in any transaction in which Prudential Securities 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 provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, 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.
B-18
<PAGE>
Such services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than the Fund, and the services furnished by such brokers may be used by the
Manager in providing investment management for the Fund. Commission rates are
established pursuant to negotiations with the broker based on the quality and
quantity of execution services provided by the broker in the light of generally
prevailing rates. The Manager is authorized to pay higher commissions on
brokerage transactions for the Fund to brokers 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 the
commission rates paid are reviewed periodically by the Fund's Board of
Directors. Portfolio securities may not be purchased from any underwriting or
selling syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the Fund's
ability to pursue its present investment objective. However, in the future in
other circumstances, the Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not subject
to such limitations.
Subject to the above considerations, the Manager may use Prudential
Securities as a broker or futures commission merchant for the Fund. In order for
Prudential Securities to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by Prudential Securities (or
any affiliate) must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers or futures commission merchants in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange or board of trade during a comparable
period of time. This standard would allow Prudential Securities (or any
affiliate) to receive no more than the remuneration which would be expected to
be received by an unaffiliated broker or futures commission merchant in a
commensurate arms-length transaction. Furthermore, the Board of Directors of the
Fund, including a majority of the Rule 12b-1 Directors, has adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) under the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. 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 (or any affiliate) are also subject to such fiduciary standards as
may be imposed upon Prudential Securities (or such affiliate) by applicable law.
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>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------
ITEM 1993 1992 1991
- ---------------------------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund...................................... $ 1,616,768 $ 927,127 $ 811,155
Total brokerage commissions paid to Prudential Securities......................... 351,201 355,900 175,366
Percentage of total brokerage commissions paid to Prudential Securities........... 21.7% 38.4% 21.6%
</TABLE>
The Fund effected approximately 27.0% 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, $1,358,085 (or 83.9%) were paid to firms which provided
research, statistical or other services to the Manager. PMF has not separately
identified a portion of such brokerage commissions as applicable 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 (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). See "Shareholder
Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan (ii)
each class has exclusive voting
B-19
<PAGE>
rights with respect to its plan (except that the Fund has agreed with the SEC in
connection with the offering of a conversion feature on Class B shares to submit
any amendment of the Class A distribution and service plan to both Class A and
Class B shareholders) and (iii) only Class B shares have a conversion feature.
See "Distributor." Each class also has separate exchange privileges. See
"Shareholder Investment Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of 5%
and Class B* and Class C* shares of the Fund 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:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share................... $ 13.80
---------
Maximum sales charge (5% of offering price).............................. .73
---------
Offering price to public................................................. $ 14.53
---------
---------
CLASS B
Net asset value, offering price and redemption price per Class B
share*.................................................................. $ 13.80
---------
---------
CLASS C
Net asset value, offering price and redemption price per Class C
share*.................................................................. $ 13.80
---------
---------
<FN>
--------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
</TABLE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be controlled
by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
[In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).]
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in the
retirement and group plans described above under "Retirement and Group Plans."
B-20
<PAGE>
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 below under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (net asset value plus maximum sales charge) as
of the previous business day. See "How the Fund Values its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
accumulation are not available to individual participants in any retirement or
group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege). All shares of the
Fund and 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. 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. Letters of Intent are not available to individual participants in
retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. The effective date of a Letter of Intent may be back-dated up to 90
days, in order that any investments made during this 90-day period, valued at
the purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO ______, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to _____, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second purchase was $550,000, the quantity discount would
be available for the second purchase of $450,000 but not for the first purchase
of $100,000. The quantity discount will be imposed at the following rates
depending on whether the aggregate value exceeded $500,000 or $1 million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
YEAR SINCE PURCHASE --------------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
- ------------------------------------------------------------------------- ------------------------- -----------------
<S> <C> <C>
First.................................................................... 3.0% 2.0%
Second................................................................... 2.0% 1.0%
Third.................................................................... 1.0% 0%
Fourth and thereafter.................................................... 0% 0%
</TABLE>
B-21
<PAGE>
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. The Fund makes available to the shareholders 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 at net asset
value. 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 distribution at net asset value by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the net asset value per share next determined after
receipt of the check or proceeds by the Transfer Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
Exchange Privilege is available for those funds eligible for investment in this
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)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money
B-22
<PAGE>
market fund. No CDSC will be payable upon such exchange of Class B shares, but a
CDSC may 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 and Class C shares of the Fund may also be exchanged for Class B and
Class C shares, respectively, of an eligible money market fund without
imposition of any CDSC at the time of exchange. Upon subsequent redemption from
such money market fund or after re-exchange into the Fund, such shares will be
subject to the CDSC calculated by excluding the time such shares were held in
the money market fund. In order to minimize the period of time in which shares
are subject to a CDSC, shares exchanged out of the money market fund will be
exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. [In measuring the time period
shares are held in a money market fund and "tolled" for purposes of calculating
the CDSC holding period, exchanges are deemed to have been made on the last day
of the month.] Thus, if shares are exchanged into the Fund from a money market
fund during the month (and are held in the Fund at the end of the month), the
entire month will be included in the CDSC holding period. Conversely, if shares
are exchanged into a money market fund prior to the last day of the month (and
are held in the money market fund on the last day of the month), the entire
month will be excluded from the CDSC holding period. For purposes of calculating
the seven-year holding period applicable to the Class B conversion feature, the
time period during which Class B shares were held in a money market fund will be
excluded.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares of
any fund participating in the Class B or Class C exchange privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
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)
- ------------------------
(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.
B-23
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(1)
<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
See "Automatic Savings Accumulation Plan."
</TABLE>
- ------------------------
(1) 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.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Share certificates are not
issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of the
shares in the shareholder's account. Withdrawals of Class B or Class C shares
may be subject to a CDSC. See "Shareholder Guide-- How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not generally 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. Withdrawals made concurrently with 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 and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the systematic withdrawal plan, particularly if used in connection with a
retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) Plan,
self-directed individual retirement accounts and "tax sheltered accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are
B-24
<PAGE>
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, their
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, and 8% rate of return and a 39.6% federal income tax
bracket and shows how much more retirement income can accumulate within an IRA
as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
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
</TABLE>
- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class. The
value of investments listed on national securities exchanges and NASDAQ equity
securities are based on the last sale price 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 exchanges. Unlisted securities are valued at the average of the
quoted bid and asked prices in the over-the-counter market. 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 by the Manager under
procedures established by and under the general supervision of the Fund's Board
of Directors. Options on stocks and stock indices traded on national securities
exchanges are valued as of the close of options trading on such exchanges (which
is currently 4:10 P.M., New York time) and stock index futures and options
thereon, which are traded on commodities exchanges, are valued at their last
sale price as of the close of such commodities exchanges (which is currently
4:15 P.M., New York time). If there were no sales on the applicable options or
commodities exchange, options on stocks and stock indices and stock index
futures and options thereon are valued at the average of the quoted bid and
asked prices as of the close of the respective exchange. Short-term securities
which mature in more than 60 days are valued at current market quotations.
Short-term securities which mature in 60 days or less are valued at amortized
cost, if their term to maturity from date of purchase was 60 days or less, or by
amortizing their value on the 61st day prior to maturity, if their term to
maturity from date of purchase exceeded 60 days, unless this 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, using the prices obtained at
the times indicated above 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, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
B-25
<PAGE>
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 Securities and Exchange Commission or its
staff.
The net asset value of Class B and Class C shares will generally be lower
than the net asset value of Class A shares as a result of the larger
distribution-related fee with respect to which Class B and Class C shares are
subject. It is expected, however, that the net asset value per share of each
class will tend to converge immediately after the recording of dividends which
will differ by approximately the amount of the distribution-related expense
accrual differential among the classes.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)to the power of 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 a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total return for Class A shares for the one year and
three-and-eleven-twelfths year periods ended December 31, 1993 was 15.72% and
13.42%, respectively. The average annual total return for Class B shares of the
Fund for the one, five, and ten year periods ended on December 31, 1993 were
16.13%, 16.24% and 14.73%, respectively. During these periods, no Class C shares
were outstanding.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B and
Class C shares. See "How the Fund Calculates Performance" in the Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
T = -------
P
Where: P = a hypothetical initial payment of $1000.
T = aggregate total return.
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return for Class A shares for the one and
three-and-eleven-twelfths year periods ended on December 31, 1993 was 22.14% and
73.39%, respectively. The aggregate total return for Class B shares for the one,
five and ten year periods ended on December 31, 1993 was 21.13%, 113.23% and
294.99%, respectively. During these periods, no Class C shares were outstanding.
B-26
<PAGE>
PERFORMANCE INFORMATION
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. YIELD IS CALCULATED SEPARATELY FOR CLASS A, CLASS B AND CLASS C
SHARES. This yield will be computed by dividing the Fund's net investment income
per share earned during this 30-day period by the maximum offering price per
share on the last day of this period. Yield is calculated according to the
following formula:
a - b
YIELD = 2[( ------- +1)to the power of 6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. The yield for the Class A and Class B shares for the 30-day period
ended December 31, 1933 was 1.46% and .74%, respectively. During this period, no
Class C shares were outstanding.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)
[CHART]
(1) Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500 Stock
Index, a market-weighted, unmanaged index of 500 common stocks in a variety of
industry sectors. It is a commonly used indicator of broad stock price
movements. This chart is for illustrative purposes only, and is not intended to
represent the performance of any particular investment or fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to declare semi-annual dividends of the Fund's net
investment income. Net capital gains, if any, will be distributed at least
annually. In determining amounts of capital gains to be distributed, any capital
loss carryforwards from prior years will be offset against capital gains.
Distributions will be paid in additional Fund shares based on net asset value,
unless the shareholder elects in writing not less than five full business days
prior to the record date to receive such distributions in cash.
B-27
<PAGE>
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B and Class C shares. See "Net Asset Value."
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. Under
Subchapter M the Fund is not subject to federal income taxes on the taxable
income it distributes to shareholders, provided that it distributes to
shareholders each year at least 90% of its net investment income and net short-
term capital gains in excess of net long-term capital losses, if any.
Qualification as a regulated investment company under the Internal Revenue Code
requires, among other things, that the Fund (a) derive at least 90% of its gross
income from dividends, interest, proceeds from securities loans, 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 gross income 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). The Fund generally will be subject to a
nondeductible excise tax of 4% to the extent that it does not meet certain
minimum distribution requirements as of the end of each calendar year. The Fund
intends to make timely distributions of the Fund's income in compliance with
these requirements. As a result, it is anticipated that the Fund will not be
subject to the excise tax.
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 extent of the unrealized gain on any offsetting
position. Further, any position in the straddle (e.g., a put option acquired by
the Fund) may affect the holding period of the offsetting position for purposes
of the 30% of gross income test described above, and accordingly the Fund's
ability to enter into straddles and dispose of the offsetting positions may be
limited.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on disposition of
debt securities denominated in a foreign currency attributable to fluctuations
in the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss.
These gains, referred to under the Code as "Section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital gain, as was the
case prior to 1987. If Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
taxable ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's basis in his or
her shares.
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.
Pennsylvania Personal Property Tax. The Fund has received a written letter
of determination from the Pennsylvania Department of Revenue that the Fund will
be subject to the Pennsylvania foreign franchise tax. Accordingly, it is
believed that Fund shares are exempt from Pennsylvania personal property taxes.
The Fund anticipates that it will continue such business activities but reserves
the right to suspend them at any time, resulting in the termination of the
exemption.
Other Tax Information. The Fund may also be subject to state or local tax in
certain other states where it is deemed to be doing business. Further, in those
states which have income tax laws, the tax treatment of the Fund and of
shareholders of the
B-28
<PAGE>
Fund with respect to distributions by the Fund may differ from federal tax
treatment. Distributions to shareholders may be subject to additional state and
local taxes. Shareholders are advised to consult their own tax advisers
regarding specific questions as to federal, state or local taxes.
CUSTODIAN, 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.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It 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, payment of dividends and distributions, and related functions. For
these services, PMFS receives an annual fee per shareholder account, 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 fiscal year
ended December 31, 1993, the Fund incurred fees of $2,177,000 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-29
<PAGE>
PRUDENTIAL EQUITY FUND, INC. PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE 1)
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--81.9%
AEROSPACE/ DEFENSE--4.5%
290,000 E-Systems, Inc.. . . . . . . . . . . . $ 12,578,750
207,800 Lockheed Corp. . . . . . . . . . . . . 14,182,350
870,000 Loral Corp.. . . . . . . . . . . . . . 32,842,500
500,000 United Technologies Corp.. . . . . . . 31,000,000
--------------
90,603,600
--------------
AUTOMOBILES & TRUCKS-5.2%
500,000 Chrysler Corp. . . . . . . . . . . . . 26,625,000
554,800 Ford Motor Co. . . . . . . . . . . . . 35,784,600
600,000 General Motors Corp. . . . . . . . . . 32,925,000
404,800 Navistar International Corp.*. . . . . 9,563,400
--------------
104,898,000
--------------
BANKS & FINANCIAL SERVICES-9.9%
1,400,000 American Express Co. . . . . . . . . . 43,225,000
300,000 BankAmerica Corp.. . . . . . . . . . . 13,912,500
600,000 Chase Manhattan Corp.. . . . . . . . . 20,325,000
600,000 Comerica, Inc. . . . . . . . . . . . . 15,975,000
35,600 Dean Witter, Discover & Co.. . . . . . 1,232,650
149,900 Dreyfus Corp.. . . . . . . . . . . . . 6,745,500
177,000 First America Bank Corp.. . . . . . . 6,947,250
300,000 First Interstate Bank Corp.. . . . . . 19,237,500
125,530 Fund American Companies, Inc.* . . . . 9,854,105
1,000,000 Great Western Financial Corp.. . . . . 20,000,000
256,500 Mercantile Bankshares Corp.. . . . . . 4,905,563
225,000 Republic New York Corp.. . . . . . . . 10,518,750
600,000 Salomon, Inc.. . . . . . . . . . . . . 28,575,000
--------------
201,453,818
--------------
CARDS & GIFT WRAPPINGS-0.8%
750,000 Gibson Greetings, Inc. . . . . . . . . 15,843,750
--------------
CHEMICALS-2.6%
123,800+ Eastman Chemical Co. . . . . . . . . . 5,880,500
355,500 IMC Fertilizer Group, Inc. . . . . . . 16,130,813
300,000 Monsanto Co. . . . . . . . . . . . . . $22,012,500
500,000 Wellman, Inc.. . . . . . . . . . . . . 9,375,000
--------------
53,398,813
--------------
COMMERCIAL SERVICES-0.4%
600,000 AAR Corp.. . . . . . . . . . . . . . . 8,700,000
--------------
COMPUTER HARDWARE-6.6%
800,000 Amdahl Corp. . . . . . . . . . . . . . 4,800,000
800,000 Comdisco, Inc. . . . . . . . . . . . . 15,400,000
2,300,000 Digital Equipment Corp.* . . . . . . . 78,775,000
412,900 Gerber Scientific, Inc.. . . . . . . . 5,728,987
150,000 Hewlett-Packard Co.. . . . . . . . . . 11,850,000
300,000 International Business Machines Corp.. 16,950,000
--------------
133,503,987
--------------
DIVERSIFIED CONSUMER PRODUCTS-5.2%
400,000+ Eastman Kodak Co.. . . . . . . . . . . 22,400,000
500,000 ITT Corp.. . . . . . . . . . . . . . . 45,625,000
300,000 Loews Corp.. . . . . . . . . . . . . . 27,900,000
122,400 Premark International, Inc.. . . . . . 9,822,600
--------------
105,747,600
--------------
DRUGS & MEDICAL SUPPLIES-2.2%
1,800,000 Baxter International, Inc. . . . . . . 43,875,000
--------------
ELECTRIC POWER-1.2%
170,000 American Electric Power, Inc.. . . . . 6,311,250
570,000 General Public Utilities Corp. . . . . 17,598,750
--------------
23,910,000
--------------
ELECTRONICS-1.8%
300,000 Avnet, Inc.. . . . . . . . . . . . . . 11,700,000
300,000 Harris Corp. . . . . . . . . . . . . . 13,650,000
200,000 Varian Associates, Inc.. . . . . . . . 12,000,000
--------------
37,350,000
--------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE 1)
- --------------------------------------------------------------------------------
<C> <S> <C>
FARM & INDUSTRIAL MACHINERY-0.5%
150,000 Deere & Co.. . . . . . . . . . . . . . $ 11,100,000
--------------
FOREST PRODUCTS-5.1%
400,000 International Paper Co.. . . . . . . . 27,100,000
550,000 James River Corp. of Virginia. . . . . 10,587,500
1,600,000 Scott Paper Co.. . . . . . . . . . . . 65,800,000
--------------
103,487,500
--------------
GAS DISTRIBUTION-0.5%
1,300,000 Arkla, Inc.. . . . . . . . . . . . . . 10,237,500
--------------
HOSPITALS-3.9%
649,700 American Medical Holdings, Inc.* . . . 12,425,512
39,400 Beverly Enterprises, Inc.* . . . . . . 522,050
747,720 Columbia Healthcare Corp.. . . . . . . 24,861,690
266,800 Foundation Health Corp.* . . . . . . . 8,270,800
459,500 Hillhaven Corp. *. . . . . . . . . . . 8,673,063
1,665,000 National Medical Enterprises, Inc. . . 23,310,000
--------------
78,063,115
--------------
INSURANCE-7.0%
900,000 Alexander & Alexander Services . . . . 17,550,000
18,100 Citizens Corp. . . . . . . . . . . . . 355,212
1,500,000 Continental Corp.. . . . . . . . . . . 41,437,500
500,000 First Colony Corp. . . . . . . . . . . 12,687,500
900,828 Old Republic International Corp. . . . 20,381,233
580,000 SAFECO Corp. . . . . . . . . . . . . . 31,900,000
175,000 St. Paul Companies, Inc. . . . . . . . 15,728,125
62,765 White River Corp. *. . . . . . . . . . 2,165,393
--------------
142,204,963
--------------
NON - FERROUS METALS-2.7%
250,000 Alumax Inc.* . . . . . . . . . . . . . 5,375,000
300,000 Aluminum Co. of America. . . . . . . . 20,812,500
122,750 Amax, Inc. . . . . . . . . . . . . . . 843,906
1,093,000 Cyprus Minerals Corp.. . . . . . . . . 28,281,375
--------------
55,312,781
--------------
OIL & GAS EXPLORATION/ PRODUCTION-7.3%
300,000 Amerada Hess Corp. . . . . . . . . . . $13,537,500
500,000 BJ Services Co.* . . . . . . . . . . . 9,625,000
750,000 British Petroleum PLC, ADR
(United Kingdom). . . . . . . . . . 48,000,000
1,100,000 Occidental Petroleum Corp. . . . . . . 18,837,500
400,000 Oryx Energy Co.. . . . . . . . . . . . 6,900,000
200,000 Royal Dutch Petroleum Co.. . . . . . . 20,875,000
700,000 Total SA, ADR (France) . . . . . . . . 18,987,500
504,400 Union Texas Petroleum, Inc.. . . . . . 10,277,150
--------------
147,039,650
--------------
RETAIL-7.9%
119,700 Dayton Hudson Corp.. . . . . . . . . . 7,989,975
300,000 Dillard Department Stores, Inc.. . . . 11,400,000
700,000 Federated Department Stores, Inc.* . . 14,525,000
470,000 K-Mart Corp. . . . . . . . . . . . . . 9,987,500
500,000 Petrie Stores Corp.. . . . . . . . . . 14,562,500
1,368,300 Tandy Corp.. . . . . . . . . . . . . . 67,730,850
1,391,900 U.S. Shoe Corp.. . . . . . . . . . . . 20,878,500
900,000 Waban, Inc. *. . . . . . . . . . . . . 12,262,500
--------------
159,336,825
--------------
SPECIALTY CHEMICALS-0.2%
22,600 LeaRonal, Inc. . . . . . . . . . . . . 355,950
100,000 Witco Corp.. . . . . . . . . . . . . . 3,187,500
--------------
3,543,450
--------------
STEEL-0.5%
500,000 Bethlehem Steel Corp.* . . . . . . . . 10,187,500
--------------
TELECOMMUNICATIONS-4.4%
1,446,500 Sprint Corp. . . . . . . . . . . . . . 50,265,875
1,000,000 Telefonica de Espana, ADR (Spain). . . 39,000,000
--------------
89,265,875
--------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
(NOTE 1)
- --------------------------------------------------------------------------------
<C> <S> <C>
TRUCKING/SHIPPING--1.5%
1,000,000O OMI Corp . . . . . . . . . . . . . . . $ 6,875,000
550,000 Overseas Shipholding Group, Inc. . . . 12,993,750
555,400 Southern Pacific Rail Corp.* . . . . . 10,969,150
--------------
30,837,900
--------------
Total common stocks
(cost $1,346,025,042). . . . . . . . 1,659,901,627
--------------
PRINCIPAL SHORT-TERM INVESTMENTS-18.1%
AMOUNT REPURCHASE AGREEMENT
(000)
- ------------- Joint Repurchase Agreement
Account
3.15%, 1/3/94
$367,097 (cost $367,097,000; Note 5). . . . . 367,097,000
--------------
TOTAL INVESTMENTS--100.0%
(cost $1,713,122,042; Note 4). . . . 2,026,998,627
Other assets in excess of
liabilities. . . . . . . . . . . . . 170,160
--------------
NET ASSETS--100%. . . . . . . . . . . . $2,027,168,787
--------------
--------------
</TABLE>
- -----------------------
*Non-income producing security.
+Indicates a when-issued security.
ADR--American Depository Receipt.
See Notes to Financial Statements.
B-32
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1993
------------
<S> <C>
Investments, at value (cost $1,346,025,042). . . . . . . . . $1,659,901,627
Repurchase Agreement (cost $367,097,000) . . . . . . . . . . 367,097,000
Receivable for Fund shares sold. . . . . . . . . . . . . . . 8,932,506
Receivable for investments sold. . . . . . . . . . . . . . . 3,461,617
Dividends and interest receivable. . . . . . . . . . . . . . 3,191,370
Deferred expenses and other assets . . . . . . . . . . . . . 29,229
--------------
Total assets. . . . . . . . . . . . . . . . . . . . . . 2,042,613,349
--------------
LIABILITIES
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . 601,581
Payable for Fund shares reacquired . . . . . . . . . . . . . 6,840,120
Payable for investments purchased. . . . . . . . . . . . . . 5,583,739
Due to Distributors. . . . . . . . . . . . . . . . . . . . . 1,535,623
Due to Manager . . . . . . . . . . . . . . . . . . . . . . . 792,503
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . 38,571
Withholding taxes payable. . . . . . . . . . . . . . . . . . 52,425
--------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 15,444,562
--------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . $2,027,168,787
--------------
--------------
Net assets were comprised of:
Common stock, at par . . . . . . . . . . . . . . . . . . . . $1,469,012
Paid-in capital in excess of par . . . . . . . . . . . . . . 1,638,420,903
--------------
1,639,889,915
Undistributed net investment income. . . . . . . . . . . . . 41,806,826
Accumulated net realized gain on investments . . . . . . . . 31,595,461
Net unrealized appreciation on investments . . . . . . . . . 313,876,585
--------------
Net assets, December 31, 1993 . . . . . . . . . . . . . . . $2,027,168,787
--------------
--------------
Class A:
Net asset value and redemption price per share ($232,534,586
DIVIDED BY 16,854,273 shares of common stock issued and
outstanding). . . . . . . . . . . . . . . . . . . . . . $13.80
Maximum sales charge (5.25% of offering price) . . . . . . . .76
------
Maximum offering price to public . . . . . . . . . . . . . . $14.56
------
------
Class B:
Net asset value, offering and redemption price per share
($1,794,634,201 DIVIDED BY 130,046,894 shares of common
stock issued and outstanding) . . . . . . . . . . . . . $13.80
------
------
</TABLE>
See Notes to Financial Statements.
B-33
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL EQUITY FUND, INC.
Statement of Operations
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
NET INVESTMENT INCOME 1993
------------
<S> <C>
Income
Dividends (net of foreign withholding taxes of
$479,392). . . . . . . . . . . . . . . . . . . . . . . . . $35,991,011
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 9,093,326
------------
Total income. . . . . . . . . . . . . . . . . . . . . . 45,084,337
------------
Expenses
Distribution fee--Class A . . . . . . . . . . . . . . . 381,556
Distribution fee--Class B . . . . . . . . . . . . . . . 15,229,923
Management fee. . . . . . . . . . . . . . . . . . . . . 8,086,967
Transfer agent's fees and expenses. . . . . . . . . . . 2,455,000
Reports to shareholders . . . . . . . . . . . . . . . . 786,000
Custodian's fees and expenses . . . . . . . . . . . . . 285,000
Registration fees . . . . . . . . . . . . . . . . . . . 249,000
Franchise taxes . . . . . . . . . . . . . . . . . . . . 202,000
Audit fee . . . . . . . . . . . . . . . . . . . . . . . 45,000
Directors' fees . . . . . . . . . . . . . . . . . . . . 45,000
Insurance expense . . . . . . . . . . . . . . . . . . . 42,000
Legal fees. . . . . . . . . . . . . . . . . . . . . . . 25,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 13,017
------------
Total expenses . . . . . . . . . . . . . . . . . . . 27,845,463
------------
Net investment income. . . . . . . . . . . . . . . . . . . . 17,238,874
------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investment transactions . . . . . . . . 116,747,891
Net change in unrealized appreciation
of investments. . . . . . . . . . . . . . . . . . . . . 183,732,635
------------
Net gain on investments. . . . . . . . . . . . . . . . . . . 300,480,526
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . . . . . . . $317,719,400
------------
------------
</TABLE>
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
PRUDENTIAL EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
INCREASE IN NET ASSETS 1993 1992
----------- -----------
<S> <C> <C>
Operations
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,238,874 $13,719,123
Net realized gain on
investment transactions . . . . . . . . . . . . . . . . . . . . . . . . . 116,747,891 73,529,360
Net change in unrealized appreciation of investments. . . . . . . . . . . . 183,732,635 51,173,102
-------------- --------------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,719,400 138,421,585
-------------- --------------
Net equalization credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,311,865 6,843,469
-------------- --------------
Dividends and distributions (Note 1)
Dividends to shareholders from net investment income
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,388,881) (2,284,357)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,831,847) (11,637,458)
-------------- --------------
(17,220,728) (13,921,815)
-------------- --------------
Distributions to shareholders from net realized
gains on investment transactions
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,075,863) (6,510,083)
-------------- --------------
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,590,180) (57,843,200)
(96,666,043) (64,353,283)
-------------- --------------
Fund share transactions(Note 6)
Proceeds from shares subscribed . . . . . . . . . . . . . . . . . . . . . . 1,246,554,009 838,574,064
Net asset value of shares issued in
reinvestment of dividends and distributions . . . . . . . . . . . . . . . . 107,310,518 73,350,581
Cost of shares reacquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . (881,414,705) (625,567,145)
-------------- --------------
Net increase in net assets from
Fund share transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 472,449,822 286,357,500
-------------- --------------
Total increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686,594,316 353,347,456
NET ASSETS
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,340,574,471 987,227,015
-------------- --------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,027,168,787 $1,340,574,471
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements.
B-34
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Prudential Equity Fund, Inc. (the "Fund"), is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is long-term growth of capital by
investing primarily in common stocks of major established corporations.
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, including options, traded on a national
securities or commodities exchange and NASDAQ National Market equity securities
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 at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Fund's policy that its custodian take
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.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date, and interest income is recorded on the accrual basis.
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 semi-annually. The Fund will distribute at least annually net capital
gains in excess of loss carryforwards, if any. 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.
EQUALIZATION: The Fund follows the accounting practice known
as equalization by which a portion of the proceeds from sales and costs
of reacquisitions of Fund shares, equivalent on a per share basis to
the amount of distributable 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 and net capital gains, if any, 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 better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to decrease paid-in capital by $770,938, increase undistributed
net investment income by $629,827 and increase accumulated net realized gains on
investments by $141,111 compared to amounts previously reported through December
31, 1992. 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
B-35
<PAGE>
agreement, PMF has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. PMF has entered into a
subadvisory agreement with 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 compensation of
officers of the Fund, occupancy and certain clerical and bookkeeping costs of
the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the Fund's average daily net assets up to $500
million, .475 of 1% of the next $500 million of average daily net assets and .45
of 1% of the Fund's average daily net assets in excess of $1 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 with 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 the
Fund's Class A and Class 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, for 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 $2,373,000 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.
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 redemptions of shares may exceed the total payments 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 $1,957,000 in contingent deferred
sales charges imposed upon certain redemptions by investors. 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 $16,074,000.
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 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
and during the year ended December 31, 1993, the Fund incurred fees of
approximately $2,177,000 for the services of PMFS. As of December 31, 1993,
$198,000 of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
For the year ended December 31, 1993, PSI earned approximately $351,200 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
B-36
<PAGE>
the year ended December 31, 1993 aggregated $488,102,364 and $304,396,823,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1993
was $1,713,122,042 and, accordingly, net unrealized appreciation for federal
income tax purposes was $313,876,585 (gross unrealized
appreciation--$389,901,278; gross unrealized depreciation--$76,024,693).
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 has a 30.67% undivided interest
in the joint account. The undivided interest for the Fund represents
$367,097,000 in the principal amount. As of such date, each repurchase agreement
in the joint account and the collateral therefor were as follows:
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.
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 Bond, 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, 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.
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.
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.
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.
There are 500 million shares of common stock, $.01 par value per share,
dividend into two classes, designated Class A and B common stock, each of which
consists of 250 million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A SHARES AMOUNT
---------- --------------
<S> <C> <C>
Year ended December 31, 1993:
Shares sold . . . . . . . . . . . . . . . . . . 10,666,901 $ 142,866,820
Shares issued in reinvestment of
dividends and distributions . . . . . . . . 1,024,585 13,957,895
Shares reacquired. . . . . . . . . . . . . . . . (6,172,832) (83,163,283)
------------ -------------
Net increase in shares outstanding . . . . . . . 5,518,654 $73,661,432
------------ -------------
------------ -------------
Year ended December 31, 1992:
Shares sold. . . . . . . . . . . . . . . . . . . 11,944,562 $145,512,175
Shares issued in reinvestment of
dividends and distributions . . . . . . . . 721,030 8,603,423
Shares reacquired. . . . . . . . . . . . . . . . (8,604,764) (105,650,276)
------------ -------------
Net increase in shares
outstanding . . . . . . . . . . . . . . . . 4,060,828 $48,465,322
------------ --------------
------------ -------------
</TABLE>
B-37
<PAGE>
<TABLE>
<CAPTION>
Class B SHARES AMOUNT
---------- --------------
<S> <C> <C>
Year ended December 31, 1993:
Shares sold. . . . . . . . . . . . . . . . . . . 84,220,134 $1,103,687,189
Shares issued in reinvestment of
dividends and distributions . . . . . . . . 7,009,195 93,352,623
Shares reacquired. . . . . . . . . . . . . . . . (60,836,074) (798,251,422)
------------ --------------
Net increase in shares
outstanding . . . . . . . . . . . . . . . . 30,393,255 $398,788,390
------------ --------------
------------ -------------
</TABLE>
<TABLE>
<CAPTION>
Class B SHARES AMOUNT
---------- --------------
<S> <C> <C>
Year ended December 31, 1992:
Shares sold. . . . . . . . . . . . . . . . . . . 59,164,132 $693,061,889
Shares issued in reinvestment of
dividends and distributions . . . . . . . . 5,566,480 64,747,158
Shares reacquired. . . . . . . . . . . . . . . . (44,433,983) (519,916,869)
------------ --------------
Net increase in shares
outstanding . . . . . . . . . . . . . . . . 20,296,629 $237,892,178
------------ --------------
------------ -------------
</TABLE>
B-38
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------
January 22,
1990+
through
Year Ended December 31, December 31, Year Ended December 31,
--------------------------- ------------ ---------------------------------------
PER SHARE OPERATING PEFORMANCE: 1993 1992 1991 1990 1993 1992 1991 1990 1989
------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . $ 12.07 $ 11.39 $ 9.84 $ 11.46 $ 12.08 $ 11.40 $ 9.85 $ 11.83 $ 9.18
------- -------- ------- -------- ------- -------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income. . . . . . . . . . . . .23 .24 .27 .31 .12 .14 .18 .26 .19
Net realized and unrealized gain (loss) on
investment transactions. . . . . . . . . . 2.42 1.30 2.09 (.36) 2.42 1.30 2.09 (.76) 2.75
------- -------- ------- -------- ------- -------- ------- -------- -------
Total from investment
operations . . . . . . . . . . . . . . . 2.65 1.54 2.36 (.05) 2.54 1.44 2.27 (.50) 2.94
------- -------- ------- -------- ------- -------- ------- -------- -------
LESS DISTRIBUTIONS
Dividends from net investment income . . . . (.22) (.23) (.24) (.35) (.12) (.13) (.15) (.26) (.20)
Distributions from net realized capital gains (.70) (.63) (.57) (1.22) (.70) (.63) (.57) (1.22) (.09)
------- -------- ------- -------- ------- -------- ------- -------- -------
Total distributions. . . . . . . . . . . . (.92) (.86) (.81) (1.57) (.82) (.76) (.72) (1.48) (.29)
------- -------- ------- -------- ------- -------- ------- -------- -------
Net asset value, end of period . . . . . . . $ 13.80 $ 12.07$ 11.39 $ 9.84 $ 13.80 $ 12.08$ 11.40 $ 9.85$ 11.83
------- -------- ------- -------- ------- -------- ------- -------- -------
------- -------- ------- -------- ------- -------- ------- -------- -------
TOTAL RETURN#: . . . . . . . . . . . . . . . 22.14% 13.65% 24.55% (0.47)% 21.13% 12.72% 23.55% (4.28)% 32.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000) . . . . . . . . . . . . . . . . . $232,535 $136,834 $82,845 $30,264 $1,794,634 $1,203,740 $904,382 $578,213 $629,230
Average net assets (000) . . . . . . . . . . $190,778 $111,489 $57,845 $27,371 $1,522,992 $1,042,028 $757,485 $583,016 $567,575
Ratios to average net assets:
Expenses, including distribution fees .. . 91% .94% .97% 1.01%* 1.71% 1.74% 1.77% 1.89% 1.62%
Expenses, excluding distribution fees. . . .71% .74% .77% .84%* .71% .74% .77% .89% .82%
Net investment income. . . . . . . . . . . 1.71% 1.91% 2.36% 2.86%* .91% 1.11% 1.56% 2.27% 1.66%
Portfolio turnover . . . . . . . . . . . . . 21% 22% 19% 76% 21% 22% 19% 76% 57%
<FN>
* 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 in 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 a full year are not
annualized.
</TABLE>
B-39
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Equity Fund, Inc.
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 Equity Fund, Inc. (the
"Fund") at December 31, 1993, and 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, and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 9, 1994
- -------------------------------------------------------------------------------
TAX INFORMATION
- -------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1993) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in 1993 the Fund paid distributions for Class A shares totalling $.92
per share, comprised of $.325 net investment income and short-term capital gains
which are taxable as ordinary income and $.595 long-term capital gains. The Fund
paid distributions for Class B shares totalling $.815 per share, comprised of
$.22 net investment income and short-term capital gains which are taxable as
ordinary income and $.595 long-term capital gains. Further, we wish to advise
you that 84.1% of the ordinary income dividends paid in 1993 qualified for the
corporate dividends received deduction available to corporate taxpayers.
B-40
<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 December 31, 1992.
Notes to Financial Statements.
Financial Highlights.
Report of Independent Accountants.
(B) EXHIBITS:
1. (a) Articles of Incorporation, as amended, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (File No. 2-75128).
(b) Amendment to Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 8 to the Registration Statement
on Form N-1A (File No. 2-75128).
(c) Amended to Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 9 to the Registration Statement
on Form N-1A (File No. 2-75128).
(d) Amendment to Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-75128).
(e) Amendment to Articles of Incorporation.
(f) Form of Amended and Restated Articles of Incorporation.*
2. (a) By-Laws of the Registrant, as amended, incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (File No. 2-75128).
(b) Amendment to By-Laws, incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A (File No. 2-75128).
(c) Amended and Restated By-Laws.*
4. (a) Specimen stock certificate for Class B shares issued by the
Registrant, incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No.
2-75128).
(b) Specimen stock certificate for Class A shares issued by the
Registrant, incorporated by reference to Exhibit No. 4 to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A (File No.
2-75128).
(c) Instruments Defining Rights of Shareholders, incorporated by
reference to Exhibit No. 4 to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (File No. 2-75128).
C-1
<PAGE>
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 9 to the Registration Statement on Form
N-1A (File No. 2-75128).
(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. 9 to the Registration
Statement on Form N-1A (File No. 2-75128).
6. (a) Distribution Agreement, as amended, incorporated by reference to
Exhibit 6(a) to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A (File No. 2-75128).
(b) Distribution Agreement between the Registrant and Prudential Mutual
Fund Distributors, Inc. for Class A Shares, incorporated by reference to
Exhibit No. 6(b) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-75128).
(c) Amended and Restated Distribution Agreement between the Registrant
and Prudential-Bache Securities Inc. for Class B Shares, incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (File No. 2-75128).
(d) Selected Dealer Agreement, incorporated by reference to Exhibit 6(b)
to Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A (File No. 2-75128).
(e) Distribution Agreement between the Registrant and Prudential Mutual
Fund Distributors, Inc. for Class A shares dated July 1, 1993.*
(f) Distribution Agreement between the Registrant and Prudential
Securities Incorporated for Class B shares dated July 1, 1993.*
(g) Form of Distribution Agreement for Class A shares.*
(h) Form of Distribution Agreement for Class B shares.*
(i) Form of Distribution Agreement for Class C shares.*
8. Custodian Agreement between the Registrant and State Street Bank and
Trust.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 9(b) to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (File No. 2-75128).
10. Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit 10
to Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 2-75128).
11. Consent of Independent Accountants.*
13. Investment Representation Letter, incorporated by reference to Exhibit
13 to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A (File No. 2-75128).
15. (a) Plan of Distribution, incorporated by reference to Exhibit 15 to
Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A (File No. 2-75128).
(b) Plan of Distribution for Class A Shares, incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-75128).
(c) Amended and Restated Plan of Distribution for Class B Shares,
incorporated by reference to Exhibit 15(c) to Post-Effective Amendment
No. 12 to the Registration Statement on Form N-1A (File No. 2-75128).
(d) Distribution and Service Plan between the Registrant (Class A shares)
and Prudential Mutual Fund Distributors, Inc.*
(e) Distribution and Service Plan between the Registrant (Class B shares)
and Prudential Securities Incorporated.*
(f) Form of Distribution and Service Plan for Class A shares.*
C-2
<PAGE>
(g) Form of Distribution and Service Plan for Class B shares.*
(h) Form of Distribution and Service Plan for Class C shares.*
16. (a) Schedule of Computation of Performance Quotations for Class B
Shares, incorporated by reference to Exhibit 16 to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No.
2-75128).
(b) Schedule of Computation of Performance Quotations for Class A Shares,
incorporated by reference to Exhibit 16(b) to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 2-75128).
(c) Schedule of Calculation of Aggregate Total Return for Class A and
Class B shares, incorporated by reference to Exhibit 16(c) to
Post-Effective Amendment No. 15 to the Registration Statement on Form
N-1A (File No. 2-75128).
- ------------------------
*Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1994, Registrant had 12,521 and 104,463 record holders of
Class A and Class B shares of common stock, $.01 par value per share, issued by
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 the Distribution Agreement (Exhibit 6 to the
Registration Statement), the 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
C-3
<PAGE>
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.
(A) PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
See "How the Fund is Managed" 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 in October 1993).
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.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President and Director of Marketing, PMF
President and
Director of Marketing
John D. Brookmeyer, Jr. Director Senior Vice President, PIC; Senior Vice President, The
Two Gateway Center Prudential Insurance Company of America (Prudential); Senior
Newark, NJ 07102 Vice President (PIC)
Susan C. Cote Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities
Fred A. Fiandaca Executive Vice Executive Vice President, Chief Operating Officer and Director,
Raritan Plaza One President, Chief PMF; Chairman, Chief Operating Officer and Director,
Edison, NJ 08847 Operating, Officer Prudential Mutual Fund Services, Inc.
and Director
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;
President, General Senior Vice President, Prudential Securities
Counsel and Secretary
Robert F. Gunia Executive Vice Executive Vice President, Chief Administrative Officer, Chief
President, Chief Financial Officer, Treasurer and Director, PMF; Senior Vice
Administrative President, Prudential Securities
Officer, Chief
Financial Officer,
Treasurer and
Director
Eugene B. Heimberg Director Senior Vice President, Prudential; President, Director and Chief
Prudential Plaza Investment Officer, PIC
Newark, NJ 07101
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
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
Executive Officer and Vice 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,
President, Senior PMF; Senior Vice President and Senior Counsel, Prudential
Counsel and Assistant Securities
Secretary
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ 07102
</TABLE>
(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
Additonal Information consisting of Part B of this Registration Statement.
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 PIC PRINCIPAL OCCUPATIONS
- ------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice Senior Vice President, Chief Financial Officer and Chief
President, Chief Compliance Officer, PIC; Vice President, Prudential
Financial Officer and
Chief Compliance
Officer
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102
Eugene B. Heimberg President, Director Senior Vice President, Prudential; President, Director and Chief
and Chief Investment Investment Officer, PIC
Officer
Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director, PIC
Harry E. Knapp, Jr. Vice President Vice President, Prudential; Vice President, PIC
Four Gateway Center
Newark, NJ 07102
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice President, PIC
Four Gateway Center
Newark, NJ 07102
Robert E. Riley Executive Vice Executive Vice President, Prudential; Executive Vice President,
800 Boylston Avenue President PIC; Director, PSG
Boston, MA 02199
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
James W. Stevens Executive Vice Executive Vice President, Prudential; Executive Vice President,
Four Gateway Center President PIC; Director, PSG
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. Executive Vice Vice President, Prudential; Executive Vice President, PIC
President
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a)(i) Prudential Securities Incorporated.
Prudential Securities is distributor for Prudential Government Securities
Trust (Intermediate Term Series), The Target Portfolio Trust and for Class B
shares of Prudential Adjustable Rate Securities, Inc., 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-Bache Structured Maturity Fund (d/b/a Prudential Structured Maturity
Fund), Prudential U.S. Government Fund and Prudential-Bache Utility Fund, Inc.
(d/b/a Prudential Utility Fund), The BlackRock Government Income Trust, Global
Utility Fund, Inc. and Nicholas-Applegate Fund Inc. (Nicholas-Applegate Growth
Equity Fund). Prudential Securities is also a depositor for the following unit
investment trusts:
The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
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, California Income
Series and Class A shares of the California Series and California Income
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
Special Money Market Fund, Inc. (d/b/a Prudential Special Money Market Fund),
Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money
Fund), The Blackstone Government Income Trust, and for Class A shares of
Prudential Adjustable Rate Securities, Inc., Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential FlexiFund, Prudential Global Fund,
Inc., Prudential-Bache Global Genesis Fund, Inc. (d/b/a Prudential Global
Genesis Fund), Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a
Prudential Global Natural Resources Fund), Prudential-Bache GNMA Fund, Inc.,
(d/b/a Prudential GNMA Fund), Prudential-Bache Government Plus Fund, Inc. (d/b/a
Prudential Government Plus Fund), Prudential Government Securities Trust (Money
Market Series and U.S. Treasury Money Market Series), Prudential Growth Fund,
C-6
<PAGE>
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-Bache MoneyMart Assets Inc. (d/b/a
Prudential MoneyMart Assets), Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund (Connecticut Money Market
Series, Massachusetts Money Market Series, New York Money Market Series, New
Jersey Money Market Series and Class A shares of all other 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-Bache Structured Maturity Fund (d/b/a
Prudential Structured Maturity Fund), Prudential U.S. Government Fund,
Prudential-Bache Utility Fund, Inc. (d/b/a Prudential Utility Fund), Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth
Equity Fund) and The BlackRock Government Income Trust.
(b)(i) Information concerning officers and directors 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 None
Administrative Officer and
Director
Howard A. Knight....................... Executive Vice President, Director, Corporate Strategy and New None
Business Development
George A. Murray....................... Executive Vice President and Director None
John P. Murray......................... Executive Vice President and Director of Risk Management None
Leland B. Paton........................ Executive Vice President and None
Director
Richard A. Redeker..................... Director None
Hardwick Simmons....................... Chief Executive Officer, President and None
Director
Lee Spencer............................ Interim General Counsel None
(ii) Information concerning the officers and directors of Prudential Mutual Fund Distributors, Inc. is set forth
below.
Fred A. Fiandaca....................... President, Chief Executive Officer and Director None
Raritan Plaza One
Edison, NJ 08847
Frank W. Giordano...................... Executive Vice President, General Counsel, Secretary and None
Director
Robert F. Gunia........................ Executive Vice President, Treasurer, Comptroller and Director Vice President
Dennis Annarumma....................... Vice President, Assistant Treasurer and Assistant Comptroller None
Phyllis J. Berman...................... Vice President None
Stephen P. Fisher...................... Vice President None
Joanne Accurso-Soto.................... Vice President None
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.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
C-7
<PAGE>
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, 1776 Heritage Drive, North Quincy,
Massachusetts, The Prudential Investment Corporation, Prudential Plaza, 751
Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New York,
New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison,
New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10) and
(11) and 31a-1(f) will be kept at 751 Broad Street, documents required by Rules
31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza and the remaining
accounts, books and other documents required by such other pertinent provisions
of Section 31(a) and the Rules promulgated thereunder will be kept by State
Street Bank and Trust Company and Prudential Mutual Fund Services, Inc.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrants' latest annual report to shareholders
upon request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of New York,
and State of New York, on the 9th day of May, 1994.
PRUDENTIAL EQUITY FUND, INC.
/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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------ -----------------
<S> <C> <C>
/s/ Lawrence C. McQuade President and Director May 9, 1994
- -----------------------------------
LAWRENCE C. MCQUADE
/s/ Edward D. Beach Director May 9, 1994
- -----------------------------------
EDWARD D. BEACH
/s/ Eugene C. Dorsey Director May 9, 1994
- -----------------------------------
EUGENE C. DORSEY
/s/ Delayne D. Gold Director May 9, 1994
- -----------------------------------
DELAYNE D. GOLD
/s/ Harry A. Jacobs Director May 9, 1994
- -----------------------------------
HARRY A. JACOBS, JR.
/s/ Thomas T. Mooney Director May 9, 1994
- -----------------------------------
THOMAS T. MOONEY
/s/ Thomas H. O'Brien Director May 9, 1994
- -----------------------------------
THOMAS H. O'BRIEN
/s/ Richard A. Redeker Director May 9, 1994
- -----------------------------------
RICHARD A. REDEKER
- ----------------------------------- Director
NANCY HAYS TEETERS
/s/ Susan C. Cote Principal Financial and May 9, 1994
- ----------------------------------- Accounting Officer
SUSAN C. COTE
</TABLE>
<PAGE>
EXHIBIT INDEX
1. (a) Articles of Incorporation, as amended, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (File No. 2-75128).
(b) Amendment to Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 8 to the Registration Statement
on Form N-1A (File No. 2-75128).
(c) Amended to Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 9 to the Registration Statement
on Form N-1A (File No. 2-75128).
(d) Amendment to Articles of Incorporation, incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-75128).
(e) Amendment to Articles of Incorporation.
(f) Form of Amended and Restated Articles of Incorporation.*
2. (a) By-Laws of the Registrant, as amended, incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (File No. 2-75128).
(b) Amendment to By-Laws, incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A (File No. 2-75128).
(c) Amended and Restated By-Laws.*
4. (a) Specimen stock certificate for Class B shares issued by the
Registrant, incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No.
2-75128).
(b) Specimen stock certificate for Class A shares issued by the
Registrant, incorporated by reference to Exhibit No. 4 to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A (File No.
2-75128).
(c) Instruments Defining Rights of Shareholders, incorporated by
reference to Exhibit No. 4 to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (File No. 2-75128).
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 9 to the Registration Statement on Form
N-1A (File No. 2-75128).
(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. 9 to the Registration
Statement on Form N-1A (File No. 2-75128).
6. (a) Distribution Agreement, as amended, incorporated by reference to
Exhibit 6(a) to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A (File No. 2-75128).
(b) Distribution Agreement between the Registrant and Prudential Mutual
Fund Distributors, Inc. for Class A Shares, incorporated by reference to
Exhibit No. 6(b) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-75128).
(c) Amended and Restated Distribution Agreement between the Registrant
and Prudential-Bache Securities Inc. for Class B Shares, incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (File No. 2-75128).
(d) Selected Dealer Agreement, incorporated by reference to Exhibit 6(b)
to Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A (File No. 2-75128).
(e) Distribution Agreement between the Registrant and Prudential Mutual
Fund Distributors, Inc. for Class A shares dated July 1, 1993.
(f) Distribution Agreement between the Registrant and Prudential
Securities Incorporated for Class B shares dated July 1, 1993.
(g) Form of Distribution Agreement for Class A shares.*
(h) Form of Distribution Agreement for Class B shares.*
(i) Form of Distribution Agreement for Class C shares.*
<PAGE>
8. Custodian Agreement between the Registrant and State Street Bank and
Trust.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 9(b) to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (File No. 2-75128).
10. Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit 10
to Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 2-75128).
11. Consent of Independent Accountants.*
13. Investment Representation Letter, incorporated by reference to Exhibit
13 to Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 2-75128).
15. (a) Plan of Distribution, incorporated by reference to Exhibit 15 to
Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A (File No. 2-75128).
(b) Plan of Distribution for Class A Shares, incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-75128).
(c) Amended and Restated Plan of Distribution for Class B Shares,
incorporated by reference to Exhibit 15(c) to Post-Effective Amendment
No. 12 to the Registration Statement on Form N-1A (File No. 2-75128).
(d) Distribution and Service Plan between the Registrant (Class A shares)
and Prudential Mutual Fund Distributors, Inc.
(e) Distribution and Service Plan between the Registrant (Class B shares)
and Prudential Securities Incorporated.
(f) Form of Distribution and Service Plan for Class A shares.*
(g) Form of Distribution and Service Plan for Class B shares.*
(h) Form of Distribution and Service Plan for Class C shares.*
16. (a) Schedule of Computation of Performance Quotations for Class B
Shares, incorporated by reference to Exhibit 16 to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No.
2-75128).
(b) Schedule of Computation of Performance Quotations for Class A Shares,
incorporated by reference to Exhibit 16(b) to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 2-75128).
(c) Schedule of Calculation of Aggregate Total Return for Class A and
Class B shares, incorporated by reference to Exhibit 16(c) to
Post-Effective Amendment No. 15 to the Registration Statement on Form
N-1A (File No. 2-75128).
- ------------------------
*Filed herewith.
<PAGE>
Exhibit 99.1(f)
PRUDENTIAL EQUITY FUND, INC.
FORM OF
ARTICLES OF AMENDMENT AND RESTATEMENT
THE PRUDENTIAL EQUITY FUND, INC., a Maryland corporation, having its
principal office in the city of Baltimore (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland, that:
FIRST: The charter of the Corporation is amended by deleting existing
Articles I through IX each in their entirety and substituting new Articles I
through IX and, as so amended, is restated as follows:
ARTICLE I
The name of the corporation (hereinafter called the "Corporation") is
Prudential Equity Fund, Inc.
ARTICLE II
PURPOSES
The purpose for which the Corporation is formed is to act as an open-end
investment company of the management type registered as such with the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940 and to
exercise and generally to enjoy all of the powers, rights and privileges granted
to, or conferred upon, corporations by the General Laws of the State of Maryland
now or hereafter in force.
ARTICLE III
ADDRESS IN MARYLAND
The post office address of the place at which the principal office of the
Corporation in the State of Maryland is located is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore,
<PAGE>
Maryland 21202-3242.
The name of the Corporation's resident agent is The Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202-3242. Said resident agent is a corporation of the State of
Maryland.
ARTICLE IV
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 750,000,000 shares of the par value
of $.01 per share and of the aggregate par value of $7,500,000 to be divided
initially into three classes, consisting of 250,000,000 shares of Class A Common
Stock, 250,000,000 shares of Class B Common Stock and 250 million shares of
Class C Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights except that (i)
Expenses related to the distribution of each class of shares shall be borne
solely by such class; (ii) The bearing of such expenses solely by shares of each
class shall be appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class; (iii) the Class A Common Stock shall be
subject to a front-end sales load and a Rule 12b-1 distribution fee as
determined by the Board of Directors from time to time; (iv) The Class B Common
Stock shall be subject to a contingent deferred sales charge and a Rule 12b-1
distribution fee as determined by the Board of Directors from time to time; and
(v)
2
<PAGE>
The Class C Common Stock shall be subject to a contingent deferred sales charge
and a Rule 12b-1 distribution fee as determined by the Board of Directors from
time to time. All shares of each particular class shall represent an equal
proportionate interest in that class, and each share of any particular class
shall be equal to each other share of that class.
(b) Each share of the Class B Common Stock of the Corporation shall be
converted automatically, and without any action or choice on the part of the
holder thereof, into shares (including fractions thereof) of the Class A Common
Stock of the Corporation (computed in the manner hereinafter described), at the
applicable net asset value of each Class, at the time of the calculation of the
net asset value of such Class B Common Stock at such times, which may vary
between shares originally issued for cash and shares purchased through the
automatic reinvestment of dividends and distributions with respect to Class B
Common Stock (each "Conversion Date"), determined by the Board of Directors in
accordance with applicable laws, rules, regulations and interpretations of the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. and pursuant to such procedures as may be established from time to
time by the Board of Directors and disclosed in the Corporation's then current
prospectus for such Class A and Class B Common Stock.
(c) The number of shares of the Class A Common Stock of the Corporation
into which a share of the Class B Common Stock is converted pursuant to Section
(1)(b) hereof shall equal the number (including for this purpose fractions of a
share) obtained by dividing the net asset value per share of the Class B Common
Stock
3
<PAGE>
for purposes of sales and redemptions thereof at the time of the calculation of
the net asset value on the Conversion Date by the net asset value per share of
the Class A Common Stock for purposes of sales and redemptions thereof at the
time of the calculation of the net asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the Class B Common Stock of the
Corporation converted into shares of the Class A Common Stock will cease to
accrue dividends and will no longer be outstanding and the rights of the holders
thereof will cease (except the right to receive declared but unpaid dividends to
the Conversion Date).
(e) The Board of Directors shall have full power and authority to adopt
such other terms and conditions concerning the conversion of shares of the Class
B Common Stock to shares of the Class A Common Stock as they deem appropriate;
provided such terms and conditions are not inconsistent with the terms contained
in this Section 1 and subject to any restrictions or requirements under the
Investment Company Act of 1940 and the rules, regulations and interpretations
thereof promulgated or issued by the Securities and Exchange Commission, any
conditions or limitations contained in an order issued by the Securities and
Exchange Commission applicable to the Corporation, or any restrictions or
requirements under the Internal Revenue Code of 1986, as amended, and the rules,
regulations and interpretations promulgated or issued thereunder.
ARTICLE V
DIRECTORS
The number of directors of the Corporation shall be not less than three,
and the names of those who shall act as such until the
4
<PAGE>
next meeting of stockholders and until their successors are duly elected and
qualify are as follows:
Edward D. Beach
Eugene C. Dorsey
Delayne D. Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
However, the By-Laws of the Corporation may fix the number of directors at a
number of other than three and may authorize the Board of Directors, by the vote
of a majority of the entire Board of Directors, to increase or decrease the
number of directors within a limit specified in the By-Laws, provided that in no
case shall the number of directors by less than three, and to fill the vacancies
created by any such increase in the number of directors. Unless otherwise
provided by the By-Laws of the Corporation, the directors of the Corporation
need not be stockholders.
The By-Laws of the Corporation may divide the Directors of the Corporation
into classes and prescribe the tenure of office of the several classes; but no
class shall be elected for a period shorter than that from the time of the
election of such class until the next annual meeting and thereafter for a period
shorter than the interval between annual meetings or for a longer period than
five years, and the term of office of at least one class shall expire each year.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
A director or officer of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for
5
<PAGE>
breach of fiduciary duty as a director or officer, except to the extent such
exemption from liability or limitation thereof is not permitted by law
(including the Investment Company Act of 1940) as currently in effect or as the
same may hereafter be amended.
No amendment, modification or repeal of this Article VI shall adversely
affect any right or protection of a director or officer that exists at the time
of such amendment, modification or repeal.
ARTICLE VII
MISCELLANEOUS
The following provisions are inserted for the management of the business and for
the conduct of the affairs of the Corporation, and for creating, defining,
limiting and regulating the powers of the Corporation, the directors and the
stockholders.
Section 1. The Board of Directors shall have the management and control
of the property, business and affairs of the Corporation and is hereby vested
with all the powers possessed by the Corporation itself so far as is not
inconsistent with law or these Articles of Incorporation. In furtherance and
without limitation of the foregoing provisions, it is expressly declared that,
subject to these Articles of Incorporation, the Board of Directors shall have
power:
(a) To make, alter, amend or repeal from time to time the By-Laws of
the Corporation except as such power may otherwise be limited in the By-
Laws.
(b) To issue shares of any class or series of the capital stock of
the Corporation.
(c) To authorize the purchase of shares of any class or series in the
open market or otherwise, at
6
<PAGE>
prices not in excess of their net asset value for shares of that class,
series or class within such series determined in accordance with
subsections (a) and (b) of Section 6 of Article V hereof, provided that the
Corporation has assets legally available for such purpose, and to pay for
such shares in cash, securities or other assets then held or owned by the
Corporation.
(d) To declare and pay dividends and distributions from funds legally
available therefor on shares of such class or series, in such amounts, if
any, and in such manner (including declaration by means of a formula or
other similar method of determination whether or not the amount of the
dividend or distribution so declared can be calculated at the time of such
declaration) and to the holders of record as of such date, as the Board of
Directors may determine.
(e) To take any and all action necessary or appropriate to maintain a
constant net asset value per share for shares of any class, series or class
within such series.
Section 2. Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles applied by or pursuant to the direction of the Board of
Directors or as otherwise required or permitted by the Securities and Exchange
Commission, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of shares, past, present and future, of each class
or series, and shares are issued and sold on the condition and
7
<PAGE>
undertaking, evidenced by acceptance of certificates for such shares by, or
confirmation of such shares being held for the account of, any stockholder, that
any and all such determinations shall be binding as aforesaid.
Nothing in this Section 2 shall be construed to protect any director or
officer of the Corporation against liability to the Corporation or its
stockholders to which such director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Section 3. The Directors of the Corporation may receive compensation
for their services, subject, however, to such limitations with respect thereto
as may be determined from time to time by the holders of shares of capital stock
of the Corporation.
Section 4. Except as required by law, the holders of shares of capital
stock of the Corporation shall have only such right to inspect the records,
documents, accounts and books of the Corporation as may be granted by the Board
of Directors of the Corporation.
Section 5. Any vote of the holders of shares of capital stock of the
Corporation authorizing liquidation of the Corporation or proceedings for its
dissolution may authorize the Board of Directors to determine, as provided
herein, or if provision is not made herein, in accordance with generally
accepted accounting principles, which assets are the assets belonging to the
Corporation or any series thereof available for distribution to the holders of
the Corporation or any series thereof (pursuant to the provisions of Section 7
of Article VI hereof) and may divide, or
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authorize the Board of Directors to divide, such assets among the stockholders
of the shares of capital stock of the Corporation or any series thereof in such
manner as to ensure that each such holder receives an amount from the proceeds
of such liquidation or dissolution that such holder is entitled to, as
determined pursuant to the provisions of Sections 3 and 7 of Article VI hereof.
ARTICLE VIII
DEFINITIONS
Section 1. As used in these Articles of Incorporation and in the By-
Laws of the Corporation, the following terms shall have the meanings indicated:
"Gross Assets" shall mean the total value of the assets of the
Corporation determined as provided in Section 3 below.
"Person" shall mean a natural person, corporation, joint stock
company, firm association, partnership, trust, syndicate, combination,
organization, government or agency or subdivision thereof.
"Securities" shall mean any stock, shares, bonds, debentures, notes,
mortgages or other obligations, and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights or interests
therein, or in any property or assets created or issued by any Person.
Section 2. Net asset value shall be determined by dividing:
(a) The total value of the assets of the Corporation determined as
provided in Section 3 below
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less, to the extent determined by or pursuant to the direction of the Board
of Directors in accordance with generally accepted accounting principles,
all debts, obligations and liabilities of the Corporation (which debts,
obligations and liabilities shall include, without limitation of the
generality of the foregoing, any and all debts, obligations, liabilities or
claims, of any and every kind and nature, fixed, accrued or unmatured,
including the estimated accrued expense of investment advisory and
administrative services, and any reserves or charges for any or all of the
foregoing, whether for taxes, expenses, contingencies, or otherwise, and
the price of common stock redeemed but not paid for) but excluding the
Corporation's liability upon its shares and its surplus, by
(b) The total number of shares of the Corporation outstanding (shares
sold by the Corporation whether or not paid for being treated as
outstanding and shares purchased or redeemed by the Corporation whether or
not paid for and treasury shares being treated as not outstanding).
Section 3. In determining for the purposes of these Articles of
Incorporation the total value of the assets of the Corporation at any time,
securities shall be taken at their market value or , in the absence of readily
available market quotations, at fair value, both as determined pursuant to
methods approved by the Board of Directors and in accordance with applicable
statutes and regulations, and all other assets at fair value determined in
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such manner as may be approved from time to time by or pursuant to the direction
of the Board of Directors.
Section 4. Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted accounted
principles by or pursuant to the direction of the Board of Directors, shall be
final and conclusive, and shall be bonding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and undertaking, evidenced by acceptance of
certificates for such shares by, or confirmation of such shares being held for
the account of any stockholder, that any and all such determinations shall be
binding as aforesaid.
Nothing in this Section 4 shall be construed to protect any director or
officer of the Corporation against any liability to the Corporation or its
stockholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE IX
AMENDMENTS
From time to time any of the provisions of these Articles of Incorporation
may be amended, altered or repealed (including any amendment that changes the
terms of any of the outstanding stock by classification, reclassification or
otherwise), and other provisions that may, under the statutes of the State of
Maryland at the time in force, be lawfully contained in articles of
incorporation may be added or inserted, upon the vote of the holders of a
majority of the shares of common stock of the
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Corporation at the time outstanding and entitled to vote, and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article IX.
SECOND: The provisions set forth in these Articles of Amendment and
Restatement are all provisions of the Charter currently in effect.
THIRD: The Corporation currently has Directors. The names of the
Directors currently in office are set forth above.
FOURTH: (a) As of immediately before the Amendment, the total number of
shares of stock of all classes which the Corporation had authority to issue was
500 million shares, all of which was Common Stock (par value $.01 per share).
(b) As amended, the total number of shares of stock of all
classes which the Corporation has authority to issue is 500 million shares,
divided into 250 million shares of Class A Common Stock (par value $.01 per
share) and 250 million shares of Class B Common Stock (par value $.01 per
share).
(c) The aggregate par value of all shares having a par value
which the Corporation was authorized to issue is $5,000,000 before the Amendment
and $5,000,000 as amended.
(d) A description, as amended, of the Class A Common Stock and
Class B Common Stock is set forth above.
FIFTH: No change.
SIXTH: The foregoing amendments to the Articles of Incorporation have
been advised by the Board of Directors and approved by the shareholders of the
Corporation.
IN WITNESS WHEREOF, THE PRUDENTIAL EQUITY FUND, INC., has
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caused these presents to be signed in its name and on its behalf by its
President and attested by its Assistant Secretary on , 199 .
THE PRUDENTIAL EQUITY FUND, INC.
By /s/ Lawrence C. McQuade
-------------------------------
Lawrence C. McQuade
President
Attest /s/ Deborah A. Docs
--------------------
Deborah A. Docs
Assistant Secretary
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Exhibit 99.2(c)
Prudential Equity Fund, Inc.
Amended and Restated By-Laws
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF MEETING. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders of
the Corporation shall be held in the month of April of each year on such date
and at such hour as may from time to time be designated by the Board of
Directors and stated in the notice of such meeting, for the purpose of electing
directors for the ensuing year and for the transaction of such other business as
may properly be brought before the meeting.
Section 3. SPECIAL OR EXTRAORDINARY MEETINGS. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called by the
Chairman of the Board, the President or a majority of the Board of Directors,
and shall be called by the Secretary upon receipt of the request in writing
signed by stockholders holding not less than 25% of the common stock issued and
outstanding and entitled to vote thereat. Such request shall state the purpose
or purposes of the proposed meeting. The Secretary shall inform such
stockholders of the reasonably estimated costs of preparing and mailing such
notice of meeting and
<PAGE>
upon payment to the Corporation of such costs, the Secretary shall give notice
stating the purpose or purposes of the meeting as required in this Article and
by-law to all stockholders entitled to notice of such meeting. No special
meeting need be called upon the request of the holders of shares entitled to
cast less than a majority of all votes entitled to be cast at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of stockholders held during the preceding twelve months.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation. If mailed, notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. RECORD DATE. The Board of Directors may fix,
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in advance, a date not exceeding ninety days preceding the date of any meeting
of stockholders, any dividend payment date or any date for the allotment of
rights, as a record date for the determination of the stockholders entitled to
notice of and to vote at such meeting or entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be. In the case of a meeting of
stockholders, such date shall not be less than ten days prior to the date fixed
for such meeting.
Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or
by proxy of the holders of record of a majority of the shares of the common
stock of the Corporation issued and outstanding and entitled to vote thereat
shall constitute a quorum at all meetings of the stockholders except as
otherwise provided in the Articles of Incorporation. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
holders of a majority of the stock present in person or by proxy shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which the
requisite amount of stock entitled to vote thereat shall be represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 7. VOTING AND INSPECTORS. At all meetings,
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stockholders of record entitled to vote thereat shall have one vote for each
share of common stock standing in his name on the books of the Corporation (and
such stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a majority of the
vote cast at a duly constituted meeting, except as otherwise provided by statute
or by the Articles of Incorporation or by these By-Laws.
At any election of Directors, the Chairman of the meeting may, and upon the
request of the holders of ten per cent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he is
not present, by the President, or if he is not present, by a Vice-President, or
if none of them is present, by a Chairman to be elected at the meeting. The
Secretary of the
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Corporation, if present, shall act as a Secretary of such meetings, or he is not
present, an Assistant Secretary shall so act; if neither the Secretary nor the
Assistant Secretary is present, then the meeting shall elect its Secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every
meeting of the stockholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the meeting,
in which event such inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs of
the Corporation shall be conducted and managed by a Board of Directors of not
less than three nor more than nine Directors, as may be determined from time to
time by vote of a majority of the Directors then in office. Directors need not
be stockholders.
Section 2. VACANCIES. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of Directors, a majority of the remaining Directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the
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next annual meeting of stockholders or until his successor is chosen and
qualifies.
Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors and may elect Directors to fill the vacancies created by any
such increase in the number of Directors until the next annual meeting or until
their successors are duly chosen and qualified. The Board of Directors, by the
vote of a majority of the entire Board, may likewise decrease the number of
Directors to a number not less than three.
Section 4. PLACE OF MEETING. The Directors may hold their meetings,
have or more offices, and keep the books of the Corporation, outside the State
of Maryland, at any office or offices of the Corporation or at any other place
as they may from time to time by resolution determine, or in the case of
meetings, as they may from time to time by resolution determine or as shall be
specified or fixed in the respective notices or waivers of notice thereof.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and on such notice as the Directors may
from time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held from time to time upon call of the
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Chairman of the Board, the President, the Secretary or two or more of the
Directors, by oral or telegraphic or written notice duly served on or sent or
mailed to each Director not less than one day before such meeting. No notice
need be given to any Director who attends in person or to any Director who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Such notice or waiver of notice
need not state the purpose or purposes of such meeting.
Section 7. QUORUM. One-third of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation or by these
By-Laws.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the Directors an
Executive Committee to consist of such number of Directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by the Board of Directors. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee
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by election from the Directors. When the Board of Directors is not in session,
to the extent permitted by law the Executive Committee shall have and may
exercise any or all of the powers of the Board of Directors in the management of
the business and affairs of the Corporation. Executive Committee may fix its
own rules of procedure, any may meet when and as provided by such rules or by
resolution of the Board of Directors, but in every case the present of a
majority shall be necessary to constitute a quorum. During the absence of a
member of the Executive Committee, the remaining members may appoint a member of
the Board of Directors to act in his place.
Section 9. OTHER COMMITTEES. The Board of Directors, by the
affirmative vote of a majority of the whole Board, may appoint from the
Directors other committees which shall in each case consist of such number of
Directors (not less than two) and shall have and may exercise such powers as the
Board may determine in the resolution appointing them. A majority of all the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board of Directors shall have power at any time to change the members and
powers of any such committee, to fill vacancies and to discharge any such
committee.
Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the
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meeting can hear each other at the same time. Participation in a meeting by
these means constitutes presence in person at the meeting.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting, if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or
committee.
Section 12. COMPENSATION OF DIRECTORS. No Director shall receive any
stated salary or fees from the Corporation for his services as such if such
Director is, otherwise than by reason of being such Director, an interested
person (as such term is defined by the Investment Company Act of 1940) of the
Corporation or of its investment adviser, administrator or principal
underwriter. Except as provided in the preceding sentence, Directors shall be
entitled to receive such compensation from the Corporation for their services as
may from time to time be vote by the Board of Directors.
Section 13. NOMINATING COMMITTEE. The Board of Directors may by the
affirmative vote of a majority of the entire Board appoint from its members a
Nominating Committee composed of two or more directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Corporation,
as the Board may from time to time determine. The Nominating Committee shall be
9
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empowered to elect its own chairman who may call, or direct the Secretary of the
Corporation to call meetings in accordance with the notice provisions of these
By-Laws otherwise applicable to meetings of the Board of Directors. The
Nominating Committee shall recommend to the Board a slate of persons who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Corporation, which may include members of the Nominating Committee, to be
nominated for election as directors by the stockholders at each annual meeting
of stockholders and to fill any vacancy occurring for any reason among the
directors who are not such interested persons.
ARTICLE III
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the annual meeting of the stockholders. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include a
President (who shall be a Director), one or more Vice-Presidents (the number
thereof to be determined by the Board of Directors), a Secretary and a
Treasurer. The Board of Directors or the Executive Committee may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President
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and Vice-President, may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed, acknowledged or
verified by two or more officers.
Section 2. TERM OF OFFICE. The term of office of all officers shall be
one year and until their respective successors are chose and qualified. Any
officer may be removed from office at any time with or without cause by the vote
of a majority of the whole Board of Directors.
Section 3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties as generally pertain to their respective offices, as
well as such powers and duties as may from time to time be conferred by the
Board of Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. CERTIFICATES FOR SHARES. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
shares of stock of the Corporation owned by him in such form as the Board may
from time to time prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorse or accompanied by
11
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proper instruments of assignment and transfer, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require; in the case of shares not represented by certificates, the same or
similar requirements may be imposed by the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a Transfer Agent, at the offices of
the Transfer Agent of the Corporation.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors or the Executive Committee may determine the conditions upon which a
new certificate of stock of the Corporation of any class may be issued in place
of a certificate which is alleged to have been lost, stolen or destroyed; and
may, in its discretion, require the owner of such certificate of his legal
representative to give bond, with sufficient surety, to the Corporation and each
Transfer Agent, if any, to indemnify it and each Transfer Agent against any and
all loss or claims which may arise by reason of the issue of a new certificate
in the place of the one so lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal, in such
form and bearing such inscriptions at it may
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determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
and shall end on the 31st day of December in each year.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify directors, officers, employees and agents
of the Corporation against judgments, fines, settlements and expenses to the
fullest extent authorized, and in the manner permitted, by applicable federal
and state law.
ARTICLE VIII
CUSTODIAN
Section 1. The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Corporation shall be kept in the
custody of one or more such custodians, provided such custodian or custodians
can be found ready and willing to act, and further provided that the Corporation
may use as subcustodians, for the purpose of holding any foreign securities and
related funds of the Corporation such foreign banks as the Board of Directors
may approve and as shall be permitted by law.
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Section 2. The Corporation shall upon the resignation or inability to
serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the Corporation be
delivered directly to the successor custodian; and
(iii) in the event that no successor custodian can be found, submit to
the stockholders before permitting delivery of the cash and securities
owned by the Corporation otherwise than to a successor custodian, the
question whether or not this Corporation shall be liquidated or shall
function without a custodian.
ARTICLE X
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by stockholders.
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Exhibit 99.6(g)
PRUDENTIAL _________ FUND
Form of
Distribution Agreement
(CLASS A SHARES)
Agreement made as of _____________199_, between Prudential ________
Fund [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Mutual Fund Distributors, Inc., a Delaware Corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class A shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class A
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the Fund it is
contemplated that the Fund will adopt a plan of distribution pursuant to Rule
12b-1 under the Investment Company Act (the Plan) authorizing payments by the
Fund to the Distributor with respect to the distribution of Class A shares of
the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class A shares of the Fund to sell Class A shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and conditions set
forth below.
<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.
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3.3 The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class
A shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class A shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS A SHARES BY THE FUND
4.1 Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh calendar day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class A
shares shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
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<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class A shares
as provided herein, the Fund agrees to sell its Class A shares so long as it has
Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class A shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
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<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund, but shall not be obligated to sell any
specific number of Class A shares. Sales of the Class A shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class A shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class A shares only to such
selected dealers as are members in good standing of the NASD. Class A shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any portion of any
front-end sales charge which is imposed on sales of Class A shares and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of .30
of 1% (including an asset-based sales charge of .05 of 1% and a service fee of
.25 of 1%) per annum
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<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class A shares of
the Fund include, among others:
(a) amounts paid to Prudential Securities for performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
distribution activities, including central office and branch
expenses;
(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class A shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(c) sales commissions and trailer commissions paid to, or on
account of, broker-dealers and financial institutions (other
than Prudential Securities and Prusec) which have entered
into selected dealer agreements with the Distributor with
respect to Class A shares of the Fund.
(d) amounts paid to, or an account of, account executives of
Prudential Securities, Prusec,
6
<PAGE>
or of other broker-dealers or financial institutions for personal
service and/or the maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (a) and (b) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class A shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class A shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act, or under common law or
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement or Prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director, trustee
or controlling person unless a court of competent jurisdiction shall determine
in a final decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of directors or trustees who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such controlling
person as aforesaid is expressly conditioned upon the Fund's being promptly
notified of any action brought against the Distributor, its officers or
directors or trustees, or any such controlling person, such notification to be
given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any Class A shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state
8
<PAGE>
a material fact in connection with such information required to be stated in the
Registration Statement or Prospectus or necessary to make such information not
misleading. The Distributor's agreement to indemnify the Fund, its officers and
Directors and any such controlling person as aforesaid, is expressly conditioned
upon the Distributor's being promptly notified of any action brought against the
Fund, its officers and Directors or any such controlling person, such
notification being given to the Distributor at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class A shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class A shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the
9
<PAGE>
Investment Company Act. To the extent that the applicable law of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: ________________________
_______________________
(Title)
Prudential______________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
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<PAGE>
Exhibit 6(h)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(CLASS B SHARES)
Agreement made as of ______ __, 199_, between Prudential ________
Fund, [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class B shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class B
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class B
shares of the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class B shares of the Fund to sell Class B shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and conditions set
forth below.
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<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class B shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
B shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS B SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class B shares needed, but not more than the Class B shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class B shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class B shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as may be
determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of its Class B shares if a banking moratorium shall have been
declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class B shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS B SHARES BY THE FUND
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class B shares
as provided herein, the Fund agrees to sell its Class B shares so long as it has
Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class B shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class B shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
B shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. Sales of the Class B shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class B shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class B shares only to such
selected dealers as are members in good standing of the NASD. Class B shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class B shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
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<PAGE>
the average daily net assets of the Class B shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class B shares of
the Fund include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities, including
central office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class B shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class B
shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial
institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder accounts; and
(f) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class B shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class B shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class B shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
<PAGE>
Exhibit 99.6(i)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(CLASS C SHARES)
Agreement made as of ______ __, 199_, between Prudential ________
Fund, [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class C shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class C
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class C
shares of the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class C shares of the Fund to sell Class C shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class C shares of the Fund to the Distributor on the terms and conditions set
forth below.
1
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class C shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
C shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS C SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class C shares needed, but not more than the Class C shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class C shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class C shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class C shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as may be
determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of its Class C shares if a banking moratorium shall have been
declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class C shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS C SHARES BY THE FUND
4.1 Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class C shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class C shares
as provided herein, the Fund agrees to sell its Class C shares so long as it has
Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class C shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class C shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class C shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class C shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class C shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
C shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund, but shall not be obligated to sell any
specific number of Class C shares. Sales of the Class C shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class C shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class C shares only to such
selected dealers as are members in good standing of the NASD. Class C shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class C shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
5
<PAGE>
the average daily net assets of the Class C shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class C shares of
the Fund include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities, including
central office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class C shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class C
shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial
institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder accounts; and
(f) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class C shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class C shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class C shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class C shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class C shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
10
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 9, 1994 relating to the financial statements and financial highlights
of Prudential Equity Fund, Inc., 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, Transfer and
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.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
May 6, 1994
<PAGE>
Exhibit 99.15(f)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS A SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors or Trustees of the Fund, including a
majority of those Directors or Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors or Trustees), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable
<PAGE>
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such other
qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine. Amounts payable under the Plan shall
be subject to the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
3
<PAGE>
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors or Trustees. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) amounts paid to Prudential Securities for performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
Distribution Activities, including central office and branch
expenses;
(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class A shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
Distribution Activities;
(c) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prudential Securities and Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to shares of the Fund.
4
<PAGE>
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of the Fund such
additional information as the Board or Trustees shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
5
<PAGE>
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or the Trustees of the Fund and a majority of the Rule 12b-1 Directors
or Trustees by votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
6
<PAGE>
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property of the Fund for the enforcement of any
claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
Dated:
7
<PAGE>
Exhibit 99.15(g)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS B SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class B shares
issued by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class B shares.
A majority of the Board of Directors or Trustees of the Fund including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
B shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class B shares of the Fund are referred to herein as
"Distribution Activities."
2
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors or Trustees. The allocation of distribution
3
<PAGE>
expenses among classes will be subject to the review of the Board of Directors
or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
B shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
4
<PAGE>
the Fund such additional information as they shall from time to time reasonably
request, including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment
5
<PAGE>
Company Act) of the Class B shares of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property
6
<PAGE>
of the Fund for the enforcement of any claims against the Fund, and neither the
Trustees, officers, agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
Dated:
7
<PAGE>
Exhibit 99.15(h)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS C SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class C shares
issued by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class C shares.
A majority of the Board of Directors or Trustees of the Fund including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
C shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class C shares of the Fund are referred to herein as
"Distribution Activities."
2
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors or Trustees. The allocation of distribution
3
<PAGE>
expenses among classes will be subject to the review of the Board of Directors
or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
4
<PAGE>
the Fund such additional information as they shall from time to time reasonably
request, including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment
5
<PAGE>
Company Act) of the Class C shares of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property
6
<PAGE>
of the Fund for the enforcement of any claims against the Fund, and neither the
Trustees, officers, agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
Dated:
7
