<PAGE>
PRUDENTIAL MUTUAL FUNDS
ONE SEAPORT PLAZA
NEW YORK, NY 10292
APRIL 18, 1994
RE: IMPORTANT PROXY MATERIAL -- IMMEDIATE ACTION REQUIRED
Dear Shareholder:
We are pleased to enclose a notice and proxy statement for a special meeting
of shareholders of the Prudential Mutual Funds to be held on June 23, 1994. You
are being asked to approve, among other things, a proposal to permit the
automatic conversion of Class B shares to Class A shares after a specified
number of years. Thereafter, converted shares will be subject to the lower
annual distribution-related fees applicable to Class A shares.
The proxy statement also includes proposals to revise the current
distribution and service plans for Class A and Class B shares and other
proposals recommended by the Fund's Manager and Subadviser.
Please read the enclosed materials carefully. The proxy statement discusses
each proposal in detail and the reasons why the Board of Directors/Trustees
recommend that you vote in favor of those proposals.
The Fund is using Shareholder Communications Corporation (SCC), a
professional proxy solicitation firm, to assist shareholders in the voting
process. If we have not yet received your proxy card as the date of the meeting
approaches, you may receive a telephone call from SCC reminding you to exercise
your right to vote.
Your vote is critical in allowing your Fund to hold the meeting as
scheduled. Please take a moment now to sign and return the proxy card in the
enclosed postage-paid envelope. If less than a majority of the eligible shares
are represented, the Fund, at shareholders' expense, will have to continue to
solicit votes until a quorum is obtained. Your prompt attention in this matter
benefits all shareholders. Thank you.
Sincerely,
Lawrence C. McQuade
PRESIDENT
SPECIAL NOTE: If you hold shares in more than one
Prudential fund, you will receive a separate proxy
package for each Fund you hold. Please be sure to
sign and return each proxy card regardless of how
many you receive.
<PAGE>
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Section240. 14a-11c or Section240. 14a-12
PRUDENTIAL-BACHE GNMA FUND, INC.
________________________________________________________________________________
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PRUDENTIAL-BACHE GNMA FUND, INC.
________________________________________________________________________________
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<PAGE>
PRUDENTIAL GNMA FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
------------------------------
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of
Prudential-Bache GNMA Fund, Inc., doing business as Prudential GNMA Fund (the
Fund), will be held at 3:00 P.M. on June 23, 1994, at 199 Water Street, New
York, N.Y. 10292, for the following purposes:
1. To elect Directors.
2. To approve an amendment of the Fund's Articles of Incorporation to
permit a conversion feature for Class B shares.
3. To approve an amended and restated Class A Distribution and Service
Plan.
4. To approve an amended and restated Class B Distribution and Service
Plan.
5. To approve elimination of the Fund's investment restrictions
regarding restricted and illiquid securities.
6. To approve elimination of the Fund's investment restriction limiting
the Fund's ability to purchase any security if the Fund would hold more than
10% of any class of securities of an issuer.
7. To approve the elimination of the Fund's investment restriction
limiting the Fund's ability to invest in the securities of any issuer in
which officers and Directors of the Fund or officers and directors of its
investment adviser own more than a specified interest.
8. To approve an amendment of the Fund's Articles of Incorporation to
change the name of the Fund to "Prudential GNMA Fund, Inc."
9. To ratify the selection by the Board of Directors of Price
Waterhouse as independent accountants for the year ending December 31, 1994.
10. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only shares of Common Stock of the Fund of record at the close of business
on March 31, 1994 are entitled to notice of and to vote at this Meeting or any
adjournment thereof.
S. JANE ROSE
SECRETARY
Dated: April 18, 1994
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. IN ORDER TO AVOID
THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
<PAGE>
PRUDENTIAL GNMA FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
------------------------
PROXY STATEMENT
------------------------
This statement is furnished by the Board of Directors of Prudential-Bache
GNMA Fund, Inc., doing business as Prudential GNMA Fund (the Fund), in
connection with its solicitation of proxies for use at a Special Meeting of
Shareholders to be held at 3:00 P.M. on June 23, 1994 at 199 Water Street, New
York, New York 10292, the Fund's principal executive office. The purpose of the
Meeting and the matters to be acted upon are set forth in the accompanying
Notice of Special Meeting.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted for the election of Directors and for each of the other proposals.
A Proxy may be revoked at any time prior to the time it is voted by written
notice to the Secretary of the Fund or by attendance at the Meeting. If
sufficient votes to approve one or more of the proposed items are not received,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares present at the Meeting or
represented by proxy. When voting on a proposed adjournment, the persons named
as proxies will vote for the proposed adjournment all shares that they are
entitled to vote with respect to each item, unless directed to disapprove the
item, in which case such shares will be voted against the proposed adjournment.
If a Proxy that is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote" (that
is, a Proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominee does
not have discretionary power), the shares represented thereby will be considered
not to be present at the Meeting for purposes of determining the existence of a
quorum for the transaction of business and be deemed not cast with respect to
such proposal. If no instructions are received by the broker or nominee from the
shareholder with reference to routine matters, the shares represented thereby
1
<PAGE>
may be considered for purposes of determining the existence of a quorum for the
transaction of business and will be deemed cast with respect to such proposal.
Also, a properly executed and returned Proxy marked with an abstention will be
considered present at the Meeting for the purposes of determining the existence
of a quorum for the transaction of business. However, abstentions and broker
"non-votes" do not constitute a vote "for" or "against" the matter, but have the
effect of a negative vote on matters which require approval by a requisite
percentage of the outstanding shares.
The close of business on March 31, 1994 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
Meeting. On that date, the Fund had 21,295,892 shares of Common Stock
outstanding and entitled to vote, consisting of 706,649 Class A shares and
20,589,242 Class B shares. Each share will be entitled to one vote at the
Meeting. It is expected that the Notice of Special Meeting, Proxy Statement and
form of Proxy will first be mailed to shareholders on or about April 22, 1994.
Management does not know of any person or group who owned beneficially 5% or
more of the outstanding shares of either class of Common Stock of the Fund as of
March 31, 1994.
The expense of solicitation will be borne by the Fund and will include
reimbursement of brokerage firms and others for expenses in forwarding proxy
solicitation material to beneficial owners. The solicitation of proxies will be
largely by mail. The Board of Directors of the Fund has authorized management to
retain Shareholder Communications Corporation, a proxy solicitation firm, to
assist in the solicitation of proxies for this Meeting. This cost, including
specified expenses, is not expected to exceed $17,500 and will be borne by the
Fund. In addition, solicitation may include, without cost to the Fund,
telephonic, telegraphic or oral communication by regular employees of Prudential
Securities Incorporated (Prudential Securities) and its affiliates.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Meeting, nine Directors will be elected to hold office for a term of
unlimited duration until their successors are elected and qualify. It is the
intention of the persons named in the accompanying form of Proxy to vote for the
election of Edward D. Beach, Eugene C. Dorsey, Delayne Dedrick Gold, Harry A.
Jacobs, Jr., Lawrence C. McQuade, Thomas T. Mooney, Thomas H. O'Brien, Richard
A. Redeker and Nancy H. Teeters, all of whom are currently members of the Board
of Directors. Each of the nominees has consented to be named in this Proxy
Statement and to serve as a Director if elected. All of the
2
<PAGE>
current members of the Board of Directors, with the exception of Mr. Redeker and
Ms. Teeters, have previously been elected by the shareholders. Mr. McQuade has
served as President and Director since May 5, 1988. Mr. Beach has served as a
Director since June 29, 1986. Mr. Dorsey has served as a Director since February
12, 1987. Ms. Gold has served as a Director since January 4, 1981. Mr. Jacobs
has served as a Director since February 14, 1985. Mr. Mooney has served as a
Director since January 22, 1986. Mr. O'Brien has served as a Director since
January 25, 1982 and Mr. Redeker and Ms. Teeters have served as Directors since
November 11, 1993 and August 4, 1992, respectively.
The Board of Directors has no reason to believe that any of the nominees
named above will become unavailable for election as a Director, but if that
should occur before the Meeting, proxies will be voted for such persons as the
Board of Directors may recommend.
The Fund's By-laws provide that the Fund will not be required to hold annual
meetings of shareholders if the election of Directors is not required under the
Investment Company Act of 1940, as amended (the Investment Company Act). It is
the present intention of the Board of Directors of the Fund not to hold annual
meetings of shareholders unless such shareholder action is required.
INFORMATION REGARDING DIRECTORS
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Edward D. Beach (69), President and Director of BMC Fund, Inc., Director -0-
a closed-end investment company; prior thereto, Vice Chairman
of Broyhill Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of Broyhill Family
Foundation Inc.; President, Treasurer and Director of First
Financial Fund, Inc. and The High Yield Plus Fund, Inc.;
President and Director of Global Utility Fund, Inc.; Director
of The Global Government Plus Fund, Inc., The Global
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Yield Fund, Inc., Prudential Adjustable Rate Securities Fund,
Inc., Prudential Equity Fund, Inc., Prudential Global Genesis
Fund, Prudential Global Natural Resources Fund, Prudential
GNMA Fund, Prudential Government Plus Fund, Prudential
Multi-Sector Fund, Inc. and Prudential Special Money Market
Fund; Trustee of The BlackRock Government Income Trust,
Command Government Fund, Command Money Fund, Command Tax-Free
Fund, Prudential California Municipal Fund, Prudential Eq-
uity Income Fund, Prudential Flexi-
Fund, Prudential Municipal Bond Fund and Prudential Municipal
Series Fund.
Eugene C. Dorsey (67), Retired President, Chief Executive Director -0-
Officer and Trustee of the Gannett Foundation (now Freedom
Forum); former Publisher of four Gannett newspapers and Vice
President of Gannett Company; past Chairman, Independent
Sector (national coalition of philanthropic organizations);
former Chairman of the American Council for the Arts;
Director of the Advisory Board of Chase Manhattan Bank of
Rochester, Prudential Equity Fund, Inc., Prudential GNMA
Fund, Prudential Institutional Liquidity Portfolio, Inc. and
The High Yield Income Fund, Inc.; Trustee of Prudential
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
California Municipal Fund, Prudential Municipal Series Fund
and The Target Portfolio Trust.
Delayne Dedrick Gold (55), Marketing and Management Director 2,407
Consultant; Director of Prudential Adjustable Rate Securities
Fund, Inc., Prudential Equity Fund, Inc., Prudential Global
Fund, Inc., Prudential GNMA Fund, Prudential Government Plus
Fund, Prudential Growth Opportunity Fund, Prudential High
Yield Fund, Prudential IncomeVertible-R- Fund, Inc.,
Prudential MoneyMart Assets, Prudential National Municipals
Fund, Prudential Pacific Growth Fund, Inc., Prudential
Short-Term Global Income Fund, Inc., Prudential Special Money
Market Fund, Prudential Structured Maturity Fund, Prudential
Tax-Free Money Fund and Prudential Utility Fund; Trustee of
The BlackRock Government Income Trust, Command Government
Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund, Prudential Government Securities
Trust, Prudential Municipal Series Fund and Prudential U.S.
Government Fund.
*Harry A. Jacobs, Jr. (72), Senior Director (since January Director -0-
1986) of Prudential Securities; formerly Interim
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Chairman and Chief Executive Officer of Prudential Mutual Fund
Management, Inc. (PMF) (June-September 1993), Chairman of the
Board of Prudential Securities (1982-1985) and Chairman of
the Board and Chief Executive Officer of Bache Group Inc.
(1977-1982); Director of the Center for National Policy,
Prudential Adjustable Rate Securities Fund, Inc., Prudential
Equity Fund, Inc., Prudential Global Fund, Inc., Prudential
GNMA Fund, Prudential Government Plus Fund, Prudential Growth
Opportunity Fund, Prudential High Yield Fund, Prudential
IncomeVertible-R- Fund, Inc., Prudential MoneyMart Assets,
Prudential National Municipals Fund, Prudential Pacific
Growth Fund, Inc., Prudential Short-Term Global Income Fund,
Inc., Prudential Special Money Market Fund, Prudential Struc-
tured Maturity Fund, Prudential Tax-Free Money Fund,
Prudential Utility Fund, The First Australia Fund, Inc., The
First Australia Prime Income Fund, Inc., The Global
Government Plus Fund, Inc. and The Global Yield Fund, Inc.;
Trustee of the Trudeau Institute, The BlackRock Government
Income Trust, Command Money Fund, Command Government Fund,
Command Tax-Free Fund, Prudential California Municipal
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Fund, Prudential Municipal Series Fund and Prudential U.S.
Government Fund.
*Lawrence C. McQuade (66), Vice Chairman of PMF (since 1988); President and -0-
Managing Director, Investment Banking, Prudential Securities Director
(1988-1991); Director of Quixote Corporation (since February
1992) and BUNZL, PLC (since June 1991); formerly Director of
Crazy Eddie Inc. (1987-1990) and Kaiser Tech, Ltd. and Kaiser
Aluminum and Chemical Corp. (March 1987-November 1988);
formerly Executive Vice President and Director of W.R. Grace
& Company; President and Director of Prudential Adjustable
Rate Securities Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Global Fund, Inc., Prudential Global Genesis Fund,
Prudential Global Natural Resources Fund, Prudential GNMA
Fund, Prudential Government Plus Fund, Prudential Growth
Fund, Inc., Prudential Growth Opportunity Fund, Prudential
High Yield Fund, Prudential IncomeVertible-R- Fund, Inc.,
Prudential Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential
MoneyMart Assets, Prudential Multi-Sector Fund, Inc.,
Prudential National Municipals Fund, Prudential Pacific
Growth Fund, Inc., Prudential Short-Term
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Global Income Fund, Inc., Prudential Special Money Market
Fund, Prudential Structured Maturity Fund, Prudential
Tax-Free Money Fund, Prudential Utility Fund, The Global
Government Plus Fund, Inc., The Global Yield Fund, Inc. and
The High Yield Income Fund, Inc.; President and Trustee of
The BlackRock Government Income Trust, Command Government
Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund, Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Government Securities Trust,
Prudential Municipal Bond Fund, Prudential Municipal Series
Fund, Prudential U.S. Government Fund and The Target
Portfolio Trust.
Thomas T. Mooney (52), President of the Greater Rochester Metro Director -0-
Chamber of Commerce; former Rochester City Manager; Trustee
of Center for Governmental Research, Inc.; Director of Blue
Cross of Rochester, Monroe County Water Authority, Rochester
Jobs, Inc., Northeast Midwest Institute, Executive Service
Corps of Rochester, Monroe County Industrial Development
Corporation, Global Utility Fund, Inc., Prudential Ad-
justable Rate Securities Fund, Inc.,
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Prudential Equity Fund, Inc., Prudential Global Genesis Fund,
Prudential Global Natural Resources Fund, Prudential GNMA
Fund, Prudential Government Plus Fund, Prudential
Multi-Sector Fund, Inc., First Financial Fund, Inc., The
Global Government Plus Fund, Inc., The Global Yield Fund,
Inc. and The High Yield Plus Fund, Inc.; Trustee of
Prudential California Municipal Fund, Prudential Equity
Income Fund, Prudential Flexi-
Fund, Prudential Municipal Bond Fund and Prudential Municipal
Series Fund.
Thomas H. O'Brien (69), President, O'Brien Associates Director 3,115
(financial and management consultants) (since April 1984);
formerly President of Jamaica Water Securities Corp.
(holding company) (February 1989-August 1990); Director (Sep-
tember 1987-April 1991), Chairman and Chief Executive Officer
(September 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 1976-June 1988); Director of
Ridgewood
Savings Bank, Yankee Energy
System, Inc., Prudential Adjust-
able Rate Securities Fund, Inc.,
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Prudential Equity Fund, Inc., Prudential GNMA Fund and Pru-
dential Government Plus Fund; Secretary and Trustee of
Hofstra University; Trustee of Prudential California
Municipal Fund and Prudential Municipal Series Fund.
*Richard A. Redeker (50), President, Chief Executive Officer Director -0-
and Director (since October 1993), PMF; Executive Vice
President, Director and Member of the Operating Committee
(since October 1993), Prudential Securities; Director (since
October 1993) of Prudential Securities Group, Inc (PSG); for-
merly Senior Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-September 1993);
Director of Global Utility Fund, Inc., Prudential Adjustable
Rate Securities Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Global Fund, Inc., Prudential Global Genesis Fund,
Prudential Global Natural Resources Fund, Prudential GNMA
Fund, Prudential Government Plus Fund, Prudential Growth
Fund, Inc., Prudential IncomeVertible-R- Fund, Inc.,
Prudential Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential
MoneyMart Assets, Prudential Multi-Sector Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Income Fund, Inc., Prudential Special Money Market Fund, Pru-
dential Structured Maturity Fund, Prudential Utility Fund,
The Global Yield Fund, Inc., The Global Government Plus Fund,
Inc., and The High Yield Income Fund, Inc.; Trustee of The
BlackRock Government Income Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund, Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential U.S. Government
Fund, and The Target Portfolio Trust.
Nancy H. Teeters (63), Economist; formerly Vice President and Director 1,641
Chief Economist (March 1986-June 1990) of International
Business Machines Corporation; Member of the Board of
Governors of the Horace H. Rackham School of Graduate Stud-
ies of the University of Michigan; Director of Inland Steel
Industries (since July 1991), Global Utility Fund, Inc.,
Prudential Equity Fund, Inc., Prudential GNMA Fund, Pru-
dential MoneyMart Assets, Prudential Special Money Market
Fund, First Financial Fund, Inc. and the Global Yield Fund,
Inc.; Trustee of The BlackRock Government Income Trust,
Command Government Fund, Command Money
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE DURING THE POSITION WITH OWNED AT
PAST FIVE YEARS AND DIRECTORSHIPS FUND MARCH 31, 1994
- --------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Fund, Command Tax-Free Fund, Prudential California Municipal
Fund and Prudential Municipal Series Fund.
<FN>
- ------------------------
* Indicates "interested" Director, as defined in the Investment Company Act, by reason of his affiliation with
PMF or Prudential Securities.
</TABLE>
The Directors and officers of the Fund as a group owned beneficially 7,163
shares of the Fund at March 31, 1994, representing less than 1% of the
outstanding shares of the Fund.
The Fund pays annual compensation of $7,500, plus travel and incidental
expenses, to each of the six Directors not affiliated with PMF or Prudential
Securities. The Directors have the option to receive the Director's fee pursuant
to a deferred fee agreement with the Fund. Under the terms of the agreement, the
Fund accrues daily the amount of such Director's fee, which accrues interest at
a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
bills at the beginning of each calendar quarter or, pursuant to an exemptive
order of the Securities and Exchange Commission (SEC), at the rate of return of
the Fund. Payment of the interest so accrued is also deferred and accruals
become payable at the option of the Director. The Fund's obligation to make
payments of deferred Directors' fees, together with interest thereon, is a
general obligation of the Fund. During the fiscal year ended December 31, 1993,
the Fund paid Directors' fees of approximately $45,000 and travel and incidental
expenses of approximately $500.
There were four regular meetings of the Fund's Board of Directors held
during the fiscal year ended December 31, 1993. The Board of Directors presently
has an Audit Committee, the members of which are Mss. Gold and Teeters and
Messrs. Beach, Dorsey, Mooney and O'Brien, the Fund's non-interested Directors.
The Audit Committee met twice during the fiscal year ended December 31, 1993.
The Audit Committee makes recommendations to the full Board with respect to the
engagement of independent accountants and reviews with the independent
accountants the plan and results of the audit engagement and matters having a
material effect upon the Fund's financial operations. The Board also has a
Nominating Committee, comprised of the Fund's non-interested Directors, which
selects and proposes candidates for election to the Board
12
<PAGE>
of Directors. The Nominating Committee met twice during the fiscal year ended
December 31, 1993. The Nominating Committee does not consider nominees
recommended by shareholders to fill vacancies on the Board.
During the fiscal year ended December 31, 1993, no Director attended fewer
than 75% of the aggregate of the total number of meetings of the Board of
Directors and any committees thereof of which such Director was a member.
The executive officers of the Fund, other than as shown above, are: David W.
Drasnin, Vice President, having held office since March 21, 1985; Robert F.
Gunia, Vice President, and Susan C. Cote, Treasurer and Principal Financial and
Accounting Officer, each having held office since May 14, 1987; S. Jane Rose,
Secretary, having held office since November 8, 1984, and Deborah A. Docs,
Assistant Secretary, having held office since August 3, 1989. Mr. Drasnin is 57
years old and is a Vice President and Branch Manager of Prudential Securities.
Mr. Gunia is 47 years old and is currently Chief Administrative Officer (since
July 1990), Director (since January 1989), Executive Vice President, Treasurer
and Chief Financial Officer (since June 1987) of PMF and a Senior Vice President
of Prudential Securities (since March 1987). He is also Vice President and
Director (since May 1989) of The Asia Pacific Fund, Inc. Ms. Cote is 39 years
old and is a Senior Vice President (since January 1989) of PMF and a Senior Vice
President of Prudential Securities (since January 1992). Prior thereto she was a
Vice President (January 1986-December 1991) of Prudential Securities. Ms. Rose
is 48 years old and is a Senior Vice President (since January 1991) and Senior
Counsel of PMF and a Senior Vice President and Senior Counsel of Prudential
Securities (since July 1992). Prior thereto, she was First Vice President (June
1987-December 1990) of PMF and a Vice President and Associate General Counsel of
Prudential Securities. Ms. Docs is 36 years old and is a Vice President and
Associate General Counsel (since January 1993) of PMF, and a Vice President and
Associate General Counsel (since January 1993) of Prudential Securities. She was
formerly Associate Vice President (January 1990 - December 1992), Assistant Vice
President (January 1989 - December 1989) and Assistant General Counsel (November
1991 - December 1992) of PMF. The executive officers of the Fund are elected
annually by the Board of Directors.
REQUIRED VOTE
Directors must be elected by a vote of a plurality of the shares present at
the Meeting in person or by proxy and entitled to vote thereupon, provided that
a quorum is present.
13
<PAGE>
MANAGEMENT OF THE FUND
THE MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, serves as the Fund's Manager under a management
agreement dated as of May 2, 1988 (the Management Agreement).
The Management Agreement was last approved by the Board of Directors of the
Fund, including a majority of the Directors who are not parties to such contract
or interested persons of such parties (as defined in the Investment Company Act)
on May 6, 1993 and was approved by shareholders on April 29, 1988.
TERMS OF THE MANAGEMENT AGREEMENT
Pursuant to the Management Agreement, PMF, subject to the supervision of the
Fund's Board of Directors and in conformity with the stated policies of the
Fund, is responsible for managing or providing for the management of the
investment of the Fund's assets. In this regard, PMF provides supervision of the
Fund's investments, furnishes a continuous investment program for the Fund's
portfolio and places purchase and sale orders for portfolio securities of the
Fund and other investments. The Prudential Investment Company (PIC), a
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential), provides such services pursuant to a subadvisory agreement (the
Subadvisory Agreement) with PMF. PMF also administers the Fund's corporate
affairs, subject to the supervision of the Fund's Board of Directors, and, in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by the Fund's Transfer and Dividend Disbursing Agent and Custodian.
PMF has authorized any of its directors, officers and employees who have
been elected as Directors or officers of the Fund to serve in the capacities in
which they have been elected. All services furnished by PMF under the Management
Agreement may be furnished by any such directors, officers or employees of PMF.
In connection with its administration of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and PMF,
except the fees and expenses of Directors not affiliated with PMF or the
Fund's investment adviser;
14
<PAGE>
(b) all expenses incurred by PMF or by the Fund in connection with
administering the ordinary course of the Fund's business, other than those
assumed by the Fund, as described below; and
(c) the costs and expenses payable to PIC pursuant to the Subadvisory
Agreement.
The Fund pays PMF for the services performed and the facilities furnished by
it a fee at an annual rate of .50 of 1% of the Fund's average daily net assets.
This fee is computed daily and paid monthly. For the fiscal year ended December
31, 1993, PMF received a management fee of $1,714,652.
The Management Agreement provides that, if the expenses of the Fund
(including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which shares of the Fund are then qualified for offer and
sale, the compensation due PMF will be reduced by the amount of such excess, or,
if such reduction exceeds the compensation payable to PMF, PMF will pay the Fund
the amount of such reduction which exceeds the amount of such compensation. Any
such reductions or payments are subject to readjustment during the year. No such
reductions or payments were required during the fiscal year ended December 31,
1993. The Fund believes the most restrictive of such annual limitations is
2 1/2% of the Fund's average daily net assets up to $30 million, 2% of the next
$70 million of such assets and 1 1/2% of such assets in excess of $100 million.
Except as indicated above, the Fund is responsible under the Management
Agreement for the payment of its expenses, including (a) the fees payable to
PMF, (b) the fees and expenses of Directors who are not affiliated with PMF or
the investment adviser, (c) the fees and certain expenses of the Fund's
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records of the Fund and of pricing Fund shares, (d) the charges and
expenses of the Fund's legal counsel and independent accountants, (e) brokerage
commissions and any issue or transfer taxes chargeable to the Fund in connection
with its securities transactions, (f) all taxes and corporate fees payable by
the Fund to governmental agencies, (g) the fees of any trade association of
which the Fund may be a member, (h) the cost of any share certificates
representing shares of the Fund, (i) the cost of fidelity and liability
insurance, (j) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the SEC and registering the Fund
and qualifying its shares under
15
<PAGE>
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 Board of Directors' meetings and of preparing, printing and
mailing prospectuses and reports to shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable to the Fund
for any error of judgment by PMF or for any loss suffered by the Fund in
connection with the matters to which the Management Agreement relates except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Management Agreement also provides that it will
terminate automatically if assigned and that it may be terminated without
penalty by the Board of Directors of the Fund, by vote of a majority of the
Fund's outstanding voting securities (as defined in the Investment Company Act)
or by the Manager, upon not more than 60 days' nor less than 30 days' written
notice.
INFORMATION ABOUT PMF
PMF, a subsidiary of Prudential Securities and an indirect, wholly-owned
subsidiary of Prudential, was organized in May 1987 under the laws of the State
of Delaware. Prudential's address is Prudential Plaza, Newark, New Jersey 07102.
PMF acts as manager for the following investment companies:
Open-End Management Investment Companies: Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential Adjustable Rate
Securities Fund Inc., Prudential California Municipal Fund, 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, 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-Bache
MoneyMart Assets Fund, Inc. (d/b/a Prudential MoneyMart Assets), Prudential
Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential-Bache National Municipals Fund, Inc.
(d/b/a Prudential National Municipals Fund), Prudential Pacific Growth Fund
Inc., Prudential Short-Term Global Income Fund,
16
<PAGE>
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special
Money Market Fund), Prudential-Bache Structured Maturity Fund, Inc.
(d/b/a Prudential Structured Maturity Fund), Prudential-Bache Tax-Free Money
Fund, Inc. (d/b/a Prudential Tax-Free Money Fund), Prudential U.S.
Government Fund, Prudential-Bache Utility Fund, Inc. (d/b/a Prudential
Utility Fund), Prudential Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund, Inc., Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. and The BlackRock Government Income Trust.
Closed-End Management Investment Companies: The Global Government Plus
Fund, Inc., The Global Yield Fund, Inc. and The High Yield Income Fund, Inc.
The consolidated statement of financial condition of PMF and subsidiaries as
of December 31, 1993 is set forth as Exhibit A to this Proxy Statement.
Certain information regarding the directors and principal executive officers
of PMF is set forth below. Except as otherwise indicated, the address of each
person is One Seaport Plaza, New York, New York 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ----------------------------- -------------------- ------------------------------
<S> <C> <C>
Brendan D. Boyle............. Executive Vice Executive Vice President and
President and Director of Marketing, PMF
Director of
Marketing
John D. Brookmeyer, Jr. Director Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
Susan C. Cote ............... Senior Vice Senior Vice President, PMF;
President Senior Vice President,
Prudential Securities
Fred A. Fiandaca ............ Executive Vice Executive Vice President,
Raritan Plaza One President, Chief Chief Operating Officer and
Edison, NJ 08847 Operating Officer Director, PMF; Chairman,
and Director Chief Operating Officer and
Director, Prudential Mutual
Fund Services, Inc.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ----------------------------- -------------------- ------------------------------
<S> <C> <C>
Stephen P. Fisher ........... Senior Vice Senior Vice President, PMF;
President Senior Vice President,
Prudential Securities
Frank W. Giordano ........... Executive Vice Executive Vice President,
President, General General Counsel and
Counsel and Secretary, PMF; Senior Vice
Secretary President, Prudential
Securities
Robert F. Gunia ............. Executive Vice Executive Vice President,
President, Chief Chief Financial and
Financial and Administrative Officer,
Administrative Treasurer and Director, PMF;
Officer, Treasurer Senior Vice President,
and Director Prudential Securities
Eugene B. Heimberg .......... Director Senior Vice President,
Prudential Plaza Prudential; President,
Newark, NJ 07102 Director and Chief
Investment Officer, PIC
Lawrence C. McQuade ......... Vice Chairman Vice Chairman, PMF
Leland B. Paton ............. Director Executive Vice President and
Director, Prudential
Securities; Director, PSG
Richard A. Redeker .......... President, Chief President, Chief Executive
Executive Officer Officer and Director, PMF;
and Director Executive Vice President,
Director and Member of the
Operating Committee,
Prudential Securities;
Director, PSG
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ----------------------------- -------------------- ------------------------------
<S> <C> <C>
S. Jane Rose ................ Senior Vice Senior Vice President, Senior
President, Senior Counsel and Assistant
Counsel and Secretary, PMF; Senior Vice
Assistant President and Senior
Secretary Counsel, Prudential
Securities
Donald G. Southwell ......... Director Senior Vice President,
213 Washington Street Prudential; Director, PSG
Newark, NJ 07102
</TABLE>
THE SUBADVISER
Investment advisory services are provided to the Fund by PMF through its
affiliate, The Prudential Investment Corporation (PIC or the Subadviser),
Prudential Plaza, Newark, New Jersey 07102, under a Subadvisory Agreement. The
Subadvisory Agreement was approved by shareholders on April 29, 1988 and was
last approved by the Board of Directors of the Fund, including a majority of the
Directors who are not parties to such contract or interested persons of such
parties (as defined in the Investment Company Act), on May 6, 1993.
TERMS OF THE SUBADVISORY AGREEMENT
Pursuant to the Subadvisory Agreement, PIC, subject to the supervision of
PMF and the Board of Directors and in conformity with the stated policies of the
Fund, manages the investment operations of the Fund and the composition of the
Fund's portfolio, including the purchase, retention and disposition of
securities and other investments. PIC is reimbursed by PMF for reasonable costs
and expenses incurred by it in furnishing such services. The fees paid by the
Fund to PMF under the Management Agreement with PMF are not affected by this
arrangement. PIC keeps certain books and records required to be maintained
pursuant to the Investment Company Act. The investment advisory services of PIC
to the Fund are not exclusive under the terms of the Subadvisory Agreement and
PIC is free to, and does, render investment advisory services to others.
PIC has authorized any of its directors, officers and employees who may be
elected as Directors or officers of the Fund to serve in the capacities in which
they have been elected. Services furnished by PIC under the Subadvisory
Agreement may be furnished by any such directors, officers or employees of PIC.
The Subadvisory Agreement provides that PIC shall not be liable for any error of
judgment or for any loss suffered by the Fund or PMF in connection with the
19
<PAGE>
matters to which the Subadvisory Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on PIC's part in the
performance of its duties or from its reckless disregard of duty. The
Subadvisory Agreement provides that it shall terminate automatically if assigned
or upon termination of the Management Agreement and that it may be terminated
without penalty by either party upon not more than 60 days' nor less than 30
days' written notice.
INFORMATION ABOUT PIC
PIC was organized in June 1984 under the laws of the State of New Jersey.
The business and other connections of PIC's directors and executive officers are
as set forth below. Except as otherwise indicated, the address of each person is
Prudential Plaza, Newark, New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATION
- ----------------------------- ----------------------- ---------------------------
<S> <C> <C>
Martin A. Berkowitz ......... Senior Vice President Senior Vice President and
and Chief Financial Chief Financial and
and Compliance Compliance Officer, PIC;
Officer Vice President,
Prudential
William M. Bethke ........... Senior Vice President Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
Eugene B. Heimberg .......... President, Director and Senior Vice President,
Chief Investment Prudential; President,
Officer Director and Chief
Investment Officer
Garnett L. Keith, Jr. ....... Director Vice Chairman and Director,
Prudential; Director, PIC
Harry E. Knapp, Jr........... Vice President Vice President, Prudential;
Four Gateway Center Vice President, PIC
Newark, NJ 07102
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATION
- ----------------------------- ----------------------- ---------------------------
<S> <C> <C>
William P. Link ............. Executive Vice Executive Vice President,
Four Gateway Center President Prudential
Newark, NJ 07102
Robert E. Riley ............. Executive Vice Executive Vice President,
800 Boylston Avenue President Prudential; Executive
Boston, MA 02199 Vice President, PIC;
Director, PSG
James W. Stevens ............ Executive Vice Executive Vice President,
Four Gateway Center President Prudential; Executive
Newark, NJ 07102 Vice President, PIC;
Director, PSG
Robert C. Winters ........... Director Chairman of the Board and
Chief Executive Officer,
Prudential; Director,
PIC; Chairman of the
Board, PSG
Claude J. Zinngrabe, Jr...... Executive Vice Vice President, Prudential
President
</TABLE>
THE DISTRIBUTORS
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities, One Seaport Plaza, New York, New York 10292, acts as the
distributor of the Class B shares of the Fund.
Under separate Distribution and Service Plans (the Class A Plan and the
Class B Plan, collectively, the Plans) adopted by the Fund under Rule 12b-1
under the Investment Company Act and separate distribution agreements (the
Distribution Agreements), PMFD and Prudential Securities (collectively, the
Distributor) incur the expenses of distributing the Fund's Class A and Class B
shares, respectively.
The Plans were last approved by the Board of Directors, including a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Class A or
21
<PAGE>
Class B Plan or in any agreement related to either Plan (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 (the Class B shareholders) on January 11, 1990.
The Plans are proposed to be amended as set forth in Proposals No. 3 and 4
below.
CLASS A PLAN. Under the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A Shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily net
assets of the Class A Shares. PMFD has advised the Fund that
distribution-related expenses of the Fund will not exceed .15 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
$15,299 under the Class A Plan representing .15 of 1% of the average daily net
assets of the Class A Shares as reimbursement of expenses related to the
distribution of Class A Shares. This amount was primarily expended on account
servicing fees to Prudential Securities and Pruco Securities Corporation, an
affiliated broker-dealer (Prusec), for payment to financial advisers and other
salespersons who sell Class A Shares. For the fiscal year ended December 31,
1993, PMFD also received $131,000 in initial sales charges.
CLASS B PLAN. Under the Class B Plan, the Fund reimburses Prudential
Securities for its distribution-related expenses with respect to Class B shares
at an annual rate of up to .75 of 1% of the average daily net assets of the
Class B Shares. The Class B Plan also provides for the payment of a service fee
to Prudential Securities at a rate not to exceed .25 of 1% of the average daily
net assets of Class B Shares. The aggregate distribution fee for Class B Shares
(asset-based sales charge plus service fee) will not exceed .75 of 1% of average
daily net assets under the Class B Plan.
For the fiscal year ended December 31, 1993, Prudential Securities received
$2,495,486 from the Fund under the Class B Plan and spent approximately
$2,744,800 in distributing the Fund's Class B shares. It is estimated that of
the latter amount approximately .1% ($2,800) was spent on printing and mailing
of prospectuses to other than current shareholders during the fiscal year ended
December 31, 1993; 44.1% ($1,209,000) on compensation to Prusec, for
22
<PAGE>
commissions to its financial advisers and other expenses, including an
allocation of overhead and other branch office distribution-related expenses,
incurred by it for distribution of Fund shares during the fiscal year ended
December 31, 1993; 14.9% ($409,800) in interest and/or carrying charges during
the fiscal year ended December 31, 1993; 40.9% ($1,123,200) during the fiscal
year ended December 31, 1993, on the aggregate of (i) commission credits to
Prudential Securities branch offices for payments of commissions to financial
advisers (21.7% ($596,500) during the fiscal year ended December 31, 1993), and
(ii) an allocation of overhead and other branch office distribution-related
expenses (19.2% ($526,700) during the fiscal year ended December 31, 1993). The
term "overhead and other branch office distribution-related expenses" represents
(a) the expenses of operating Prudential Securities branch offices in connection
with the sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of Fund shares and (d) other incidental expenses relating to branch
promotion of Fund sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. Under the current Class B plan, the amount of distribution
expenses reimbursable by Class B shares of the Fund is reduced by the amount of
such contingent deferred sales charges. For the fiscal year ended December 31,
1993, Prudential Securities received approximately $504,000, in contingent
deferred sales charges. As of December 31, 1993, the aggregate amounts of
unreimbursed distribution expenses for the Fund's Class B shares were
approximately $11,763,000.
The Class A and Class B Plans continue in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Directors, including a majority vote of the Rule 12b-1 Directors, cast in
person at a meeting called for the purpose of voting on such continuance. The
Class A and Class B Plans may each be terminated at any time, without penalty,
by the vote of a majority of the Rule 12b-1 Directors or by the vote of the
holders of a majority of the outstanding shares of the applicable class on not
more than 30 days' written notice to any other party to the Plans. Neither Plan
may be amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class,
and all material amendments are required to be approved by the Board of
Directors in the manner described above. Each Plan will automatically terminate
in the event of its assignment. The Fund will not be contractually obligated
23
<PAGE>
to pay expenses incurred under either the Class A Plan or the Class B Plan if it
is terminated or not continued. In the event of termination or noncontinuation
of the Class B Plan, the Board of Directors may consider the appropriateness of
having the Fund reimburse Prudential Securities for the outstanding carryforward
amounts plus interest thereon.
Pursuant to each Plan, the Board of Directors reviews at least quarterly a
written report of the distribution expenses incurred on behalf of the Class A
and Class B shares of the Fund by PMFD and Prudential Securities, respectively.
The report includes an itemization of the distribution expenses and the purposes
of such expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Rule 12b-1 Directors shall be committed to the Rule
12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act. Each Distribution Agreement was
last approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on May 6, 1993.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities and
futures contracts 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. Fixed income 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 wil not deal with Prudential
Securities in any transaction in which Prudential Securities acts as principal.
Purchases and sales of securities or futures contracts on a securities exchange
or board of trade will be effected through brokers or futures commission
merchants who charge a commission for their services. Orders may be directed to
any broker or futures commission merchants including, to the extent and in the
manner permitted by applicable law, Prudential Securities.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price
24
<PAGE>
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 the policy of obtaining the most favorable price and efficient
execution, the Manager will consider research and investment services provided
by brokers, dealers or futures commission merchants who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers or futures commission merchants 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, dealer or futures commission merchants based on the quality and quantity
of execution services provided by the broker, dealer or futures commission
merchants in the light of generally prevailing rates. The Manager's policy is to
pay higher commissions to brokers and futures commission merchants, other than
Prudential Securities, for particular transactions than might be charged if a
different broker or futures commission merchant had been selected, on occasions
when, in the Manager's opinion, this policy furthers the objective of obtaining
best price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Fund to brokers and futures
commission merchants other than Prudential Securities in order to secure
research and investment services described above, subject to the primary
consideration of obtaining the most favorable price and efficient execution in
the circumstances and 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 futures commission merchants and the commission
rates paid are reviewed periodically. 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.
25
<PAGE>
However, in the future in other circumstances, the Fund may be at a disadvantage
because of this limitation in comparison to other funds with similar objectives
but not subject to such limitations.
Subject to the above considerations, the Manager may use Prudential
Securities or any affiliate as a broker or futures commission merchant for the
Fund. In order for Prudential Securities or any affiliate to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities or any affiliate must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers 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 arm's-length transaction. Furthermore, the
Board of Directors of the Fund, including a majority of the Directors who are
not "interested" directors as defined in the Investment Company Act, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Prudential Securities or any affiliate are
consistent with the foregoing standard. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage transactions with Prudential Securities or any
affiliate are also subject to such fiduciary standards as may be imposed upon
Prudential Securities or such affiliate by applicable law.
The Fund paid no brokerage commissions to Prudential Securities during the
fiscal years ended December 31, 1993, 1992, and 1991.
APPROVAL OF A PROPOSAL TO AMEND
THE FUND'S ARTICLES OF INCORPORATION
TO PERMIT THE IMPLEMENTATION OF A CONVERSION FEATURE
(FOR CONSIDERATION BY CLASS A AND CLASS B SHAREHOLDERS VOTING JOINTLY)
(PROPOSAL NO. 2)
The Board of Directors is recommending that shareholders approve an
amendment to the Fund's Articles of Incorporation to permit the implementation
of a conversion feature for Class B shares. The conversion feature is
26
<PAGE>
authorized pursuant to an exemptive order of the SEC (the SEC Order) and would
provide for the automatic conversion of Class B shares to Class A shares at
relative net asset value approximately seven years after purchase. Class A
shares are subject to a lower annual distribution and service fee than Class B
shares and conversions would occur without the imposition of any additional
sales charge. A description of the conversion feature is set forth in greater
detail below. Amendment of the Articles of Incorporation requires approval by a
majority of the Fund's outstanding shares.
THE CLASSES OF SHARES
The Fund currently offers two classes of shares, designated as Class A and
Class B shares pursuant to the Alternative Purchase Plan, in reliance upon the
SEC Order. Class A shares are currently offered with an initial sales charge of
up to 4.5% of the offering price and are subject to an annual distribution and
service fee of up to .30 of 1% of the average daily net assets of the Class A
shares pursuant to a Rule 12b-1 plan. This fee is currently charged at a rate of
.15 of 1% of the average daily net assets of the Class A shares and PMFD has
agreed to so limit its fee under the Class A Plan for the fiscal year ended
December 31, 1994. Class B shares are currently offered without an initial sales
charge but are subject to a contingent deferred sales charge or CDSC (declining
from 5% to zero of the lesser of the amount invested or the redemption proceeds)
on certain redemptions generally made within six years of purchase and to an
annual distribution and service fee pursuant to a Rule 12b-1 plan of up to .75
of 1% of the average daily net assets of the Class B shares.
In accordance with the SEC Order, the Board of Directors may, among other
things, authorize the creation of additional classes of shares from time to
time. The Board of Directors has approved the offering of a new class of shares,
to be designated Class C shares, which will be offered simultaneously with the
offering of Class B shares with the proposed conversion feature. It is
anticipated that Class C shares will be offered without an initial sales charge
but will be subject to an annual distribution and service fee not to exceed 1%
of the average daily net assets of the Class C shares and, subject to approval
by the Board of Directors, a 1% CDSC on certain redemptions made within one year
of purchase. If the proposed conversion feature for Class B shares is not
approved, Class C shares will not be offered.
THE PROPOSED CONVERSION FEATURE
On May 6, 1993, the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act), approved an amendment to the Fund's Articles of
27
<PAGE>
Incorporation to permit the implementation of a conversion feature for the
Fund's Class B shares. A copy of the proposed amendment to the Fund's Articles
of Incorporation is attached hereto as Exhibit B.
If this proposal is approved, it is currently contemplated that conversions
of Class B shares to Class A shares will occur on a quarterly basis
approximately seven years from the purchase. The first conversion is currently
anticipated to occur in or about January 1995. Conversions will be effected
automatically at relative net asset value without the imposition of any
additional sales charge. Class B shareholders will benefit from the conversion
feature because they will thereafter be subject to the lower annual distribution
and service fee applicable to Class A shares.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, it is currently anticipated that the number
of Class B shares eligible to convert to Class A shares (excluding shares
acquired through the automatic reinvestment of dividends and other
distributions) (the Eligible Shares) will be 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 a
shareholder's account (ii) multiplied by the total number of Class B shares then
held in such shareholder's account. Each time any Eligible Shares in a
shareholder's account convert to Class A shares, all shares or amounts
representing Class B shares then in such account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in a shareholder's account on any conversion date are the result of
multiple purchases at different net asset values per share, the number of
Eligible Shares calculated as described above will generally be either more or
less than the number of shares actually purchased approximately seven years
before such conversion date. For example, if 100 shares were initially purchased
at $10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (I.E., $1,000
divided by $2,100 (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.
If the net asset value per share of Class A is higher than that of Class B
at the time of conversion (which may be the case because of the higher
distribution
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and service fee applicable to Class B shares), shareholders will receive fewer
Class A shares than Class B shares converted, although the aggregate dollar
value will be the same.
For purposes of calculating the applicable holding period for conversions,
all payments for purchases of Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange, or a series of exchanges, on the last day of the month in
which the original payment for purchases of such Class B shares were made. For
Class B shares previously exchanged for shares of a money market fund, the time
period during which such shares were held in the money market fund will be
excluded. For example, Class B shares held in a money market fund for a period
of one year will not convert to Class A shares until approximately eight years
from purchase. For purposes of measuring the time period during which shares are
held in a money market fund, exchanges will be deemed to have been made on the
last day of the month. Class B shares acquired through exchange will convert to
Class A shares after expiration of the conversion period applicable to the
original purchase of such shares. As of the date of the first conversion (which,
as noted above, is currently anticipated to occur in or about January 1995) all
amounts representing Class B shares then outstanding beyond the expiration of
the applicable conversion period will automatically convert to Class A shares,
together with all shares or amounts representing Class B shares acquired through
the automatic reinvestment of dividends and distributions then held in the
shareholder's account.
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.
If approved by shareholders, the conversion feature may be subject to the
continuing availability of opinions of counsel or rulings of the Internal
Revenue Service (i) that the dividends and other distributions paid on Class A
and Class B shares will not constitute "preferential dividends" under the
Internal Revenue Code of 1986, as amended, and (ii) that the conversion of
shares does not constitute a taxable event. 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.
REQUIRED VOTE
The proposed amendment to the Fund's Articles of Incorporation to implement
the conversion feature requires the affirmative vote of a majority of the
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Fund's outstanding shares. In the event shareholders of the Fund do not approve
the proposed amendment, the conversion feature will not be implemented for the
Fund and Class B shares of the Fund will continue to be subject, possibly
indefinitely, to their higher annual distribution and service fee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
APPROVAL OF
AMENDED AND RESTATED CLASS A DISTRIBUTION
AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS A AND CLASS B SHAREHOLDERS VOTING SEPARATELY)
(PROPOSAL NO. 3)
On May 6, 1993, the Fund's Board of Directors approved an amended and
restated Class A Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act and an amended and restated Distribution Agreement with
PMFD for Class A shares of the Fund (the Proposed Class A Plan and the Proposed
Class A Distribution Agreement, respectively) and recommends submission of the
Proposed Class A Plan to the Fund's Class A shareholders for approval or
disapproval at this Special Meeting of Shareholders. As contemplated by the SEC
Order (previously defined under Proposal No. 2 above), the Proposed Class A Plan
is also being submitted for approval by Class B shareholders because, subject to
the approval of Proposal No. 2, Class B shares will automatically convert to
Class A shares approximately seven years after purchase. The Proposed Class A
Distribution Agreement does not require and is not being submitted for
shareholder approval.
The purpose of the Proposed Class A Plan is to compensate PMFD, the
distributor of the Fund's Class A shares, for providing distribution assistance
to broker-dealers, including Prudential Securities and Prusec, affiliated
broker-dealers, and other qualified broker-dealers, if any, whose customers
invest in Class A shares of the Fund and to defray the costs and expenses,
including the payment of account servicing fees, of the services provided and
activities undertaken to distribute Class A shares (Distribution Activities).
The Board of Directors previously adopted a plan of distribution for the
Fund's Class A shares pursuant to Rule 12b-1 under the Investment Company Act
which was approved by shareholders on December 19, 1990 and last approved by the
Board of Directors on May 6, 1993 (the Existing Class A Plan). Shareholders of
the Fund's Class A and Class B shares are being asked to approve amendments to
the Existing Class A Plan that change it from a reimbursement type plan to a
compensation type plan. The amendments do not
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<PAGE>
change the maximum annual fee that may be paid to PMFD under the Existing Class
A Plan, although the possibility exists that expenses incurred by PMFD and for
which it is entitled to be reimbursed under the Existing Class A Plan may be
less than the fee PMFD will receive under the Proposed Class A Plan. The
amendments are being proposed to facilitate administration and accounting. The
Board of Directors believes that the Proposed Class A Plan is in the best
interest of the Fund and is reasonably likely to benefit the Fund's Class A
shareholders. A copy of the Proposed Class A Plan is attached hereto as Exhibit
C.
THE EXISTING CLASS A PLAN
Under the Existing Class A Plan, the Fund reimburses PMFD for expenses
incurred for Distribution Activities at an annual rate of up to .30 of 1% of the
average daily net assets of the Class A shares (up to .25 of 1% of which may
constitute a service fee for the servicing and maintenance of shareholder
accounts). Article III, Section 26 of the NASD Rules of Fair Practice (the NASD
Rules) places an annual limit of .25 of 1% on fees that may be imposed for the
provision of personal service and/or the maintenance of shareholder accounts
(service fees) and an annual limit of .75 of 1% on asset-based sales charges (as
defined in the NASD Rules). Subject to these limits, the Fund may impose any
combination of service fees and asset-based sales charges under both the
Existing Class A Plan and the Proposed Class A Plan; provided that the total
fees do not exceed .30 of 1% per annum of the average daily net assets of the
Class A shares.
The Existing Class A Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class A shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
Directors, including a majority of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on the Plan. So long as the Existing
Class A Plan is in effect, the selection and nomination of Rule 12b-1 Directors
will be committed to the discretion of the Rule 12b-1 Directors.
The Existing Class A Plan may be terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Directors or by the vote
of a majority of the outstanding Class A shares of the Fund (as defined in the
Investment Company Act) on written notice to any other party to such plan and
will automatically terminate in the event of its assignment (as defined in the
Investment Company Act). For a more detailed description of the Existing Class A
Plan, see "Management of the Fund -- The Distributors -- Class A Plan."
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<PAGE>
THE PROPOSED CLASS A PLAN
The Proposed Class A Plan amends the Existing Class A Plan in one material
respect. Under the Existing Class A Plan, the Fund reimburses PMFD for expenses
actually incurred for Distribution Activities up to a maximum of .30 of 1% per
annum of the average daily net assets of the Class A shares. The Proposed Class
A Plan authorizes the Fund to pay PMFD the same maximum annual fee as
compensation for its Distribution Activities regardless of the expenses incurred
by PMFD for Distribution Activities. The Distributor may, however, as it
currently does, voluntarily agree to limit its fee to an amount less than the
maximum annual fee. In contrast to the Existing Class A Plan, the amounts
payable by the Fund under the Proposed Class A Plan would not be directly
related to the expenses actually incurred by PMFD for its Distribution
Activities. Consequently, if PMFD's expenses for Distribution Activities are
less than the distribution and service fees it receives under the Proposed Class
A Plan, it will retain its full fees and realize a profit.
Since inception of the Existing Class A Plan, the reimbursable expenses
incurred thereunder by PMFD have generally equalled or exceeded the amount
reimbursed by the Fund. For the fiscal years ended December 31, 1991, 1992 and
1993, PMFD received payments of $4,553, $9,940 and $15,299, respectively, under
the Existing Class A Plan, representing .15 of 1% of the average daily net
assets of the Class A shares as reimbursement of expenses incurred for
Distribution Activities. Although PMFD agreed to limit its fees under the
Existing Class A Plan to .15 of 1% for the fiscal year ended December 31, 1991
and to .25 of 1% for the fiscal years ended December 31, 1992 and 1993, it in
fact further limited its fee to .15 of 1% for all three fiscal years even though
its direct and indirect reimbursable distribution expenses exceeded such amount.
PMFD believes that it would have similarly limited its fee had the Proposed
Class A Plan been in effect during the past three fiscal years, although it
could have assessed the maximum annual fee of .30 of 1%. Regardless of which
plan will be in effect, the Distributor has voluntarily agreed to limit its fees
for Distribution Activities to no more than .15 of 1% of the average daily net
assets of the Class A shares for the fiscal year ending December 31, 1994. Other
expenses incurred by PMFD for Distribution Activities have been and will
continue to be paid from the proceeds of initial sales charges.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class A Plan, over a reimbursement type plan, such as the Existing
Class A Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order to
qualify for reimbursement. Although the Proposed Class A Plan will continue to
require
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<PAGE>
quarterly reporting to the Board of Directors of the amounts accrued and paid
under the Plan and of the expenses actually borne by the Distributor, there will
be no need to match specific expenses to reimbursements as under the Existing
Class A Plan. Thus, the accounting for the Proposed Class A Plan would be
simplified and the timing of when expenditures are to be made by the Distributor
would not be an issue. These considerations, combined with the reasonable
likelihood, although there is no assurance, that the per annum payment rate
under the Proposed Class A Plan will not exceed the expenses incurred by PMFD
for Distribution Activities, suggest that the costs and efforts associated with
a reimbursement plan are unwarranted.
In considering whether to approve the Proposed Class A Plan, the Directors
reviewed, among other things, the nature and scope of the services to be
provided by PMFD, the purchase options available to investors under the
Alternative Purchase Plan, the amount of expenditures under the Existing Class A
Plan, the relationship of such expenditures to the overall cost structure of the
Fund, and comparative data with respect to distribution arrangements adopted by
other investment companies. Based upon such review, the Directors, including a
majority of the Rule 12b-1 Directors, determined that there is a reasonable
likelihood that the Proposed Class A Plan will benefit the Fund and its Class A
shareholders.
If approved by shareholders, the Proposed Class A Plan will continue in
effect from year to year, provided such continuance is approved at least
annually by vote of a majority of the Board of Directors, including a majority
of the Rule 12b-1 Directors.
REQUIRED VOTE
If Proposal No. 2 is approved by shareholders, the Proposed Class A Plan
will require the approval of a majority of the Fund's outstanding Class A shares
and Class B shares (as defined in the Investment Company Act) voting separately.
If proposal No. 2 is not approved by shareholders, the Proposed Class A Plan
will only require the approval of a majority of the Fund's outstanding Class A
shares. Under the Investment Company Act, a majority of a class' outstanding
voting shares is defined as the lesser of (i) 67% of a class' outstanding voting
shares represented at a meeting at which more than 50% of the outstanding voting
shares of the class are present in person or represented by proxy, or (ii) more
than 50% of a class' outstanding voting shares. If the Proposed Class A Plan is
not approved as described above, the Existing Class A Plan will continue in its
present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3.
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<PAGE>
APPROVAL OF AMENDED AND
RESTATED CLASS B DISTRIBUTION AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS B SHAREHOLDERS ONLY)
(PROPOSAL NO. 4)
On May 6, 1993, the Fund's Board of Directors approved an amended and
restated Class B Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act and an amended and restated Class B Distribution
Agreement with Prudential Securities for Class B shares of the Fund (the
Proposed Class B Plan and the Proposed Class B Distribution Agreement,
respectively) and recommends submission of the Proposed Class B Plan to the
Fund's Class B shareholders for approval or disapproval at this Special Meeting
of Shareholders. The Proposed Class B Distribution Agreement does not require
and is not being submitted for shareholder approval.
The purpose of the Proposed Class B Plan is to compensate Prudential
Securities, the Distributor of the Fund's Class B shares, for providing
distribution assistance to broker/dealers, including Prusec, an affiliated
broker/dealer, and other qualified broker/dealers, if any, whose customers
invest in Class B shares of the Fund and to defray the costs and expenses,
including the payment of account servicing fees, of the services provided and
activities undertaken to distribute Class B shares (Distribution Activities).
The Board of Directors previously adopted a plan of distribution for the
Fund's Class B shares pursuant to Rule 12b-1 under the Investment Company Act
which was approved by shareholders on January 11, 1990 and last approved by the
Board of Directors on May 6, 1993 (the Existing Class B Plan). Shareholders of
the Fund's Class B shares are being asked to approve amendments to the Existing
Class B Plan that change it from a reimbursement type plan to a compensation
type plan. The amendments do not change the maximum annual fee that may be paid
to Prudential Securities under the Existing Class B Plan, although the
possibility exists that expenses incurred by Prudential Securities and for which
it is entitled to be reimbursed under the Existing Class B Plan may be less than
the fee Prudential Securities will receive under the Proposed Class B Plan. The
amendments are being proposed to facilitate administration and accounting. The
Board of Directors believes that the Proposed Class B Plan is in the best
interest of the Fund and is reasonably likely to benefit the Fund's Class B
shareholders. A copy of the Proposed Class B Plan is attached hereto as Exhibit
D.
THE EXISTING CLASS B PLAN
Under the Existing Class B Plan, the Fund reimburses Prudential Securities
for expenses incurred for Distribution Activities at an annual rate of up to .75
of
34
<PAGE>
1% of the average daily net assets of the Class B shares (up to .25 of 1% of
which may constitute a service fee for the servicing and maintenance of
shareholder accounts). Amounts reimbursable under the Plan that are not paid
because they exceed the maximum fee payable thereunder are carried forward and
may be recovered in future years by Prudential Securities from asset-based sales
charges imposed on Class B shares, to the extent such charges do not exceed .75
of 1% per annum of the average daily net assets of the Class B shares, and from
contingent deferred sales charges received from certain redeeming shareholders,
subject to the limitations of Article III, Section 26 of the NASD Rules. The
NASD Rules place an annual limit of .75 of 1% on asset-based sales charges (as
defined in the NASD Rules) and an annual limit of .25 of 1% on fees that may be
imposed for the provision of personal service and/or the maintenance of
shareholder accounts (service fees). Pursuant to the NASD Rules, the aggregate
deferred sales charges and asset-based sales charges on Class B shares of the
Fund may not, subject to certain exclusions, exceed 6.25%, of total gross sales
of Class B shares.
The Existing Class B Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class B shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
Directors, including a majority of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on the plan. So long as the Existing
Class B Plan is in effect, the selection and nomination of Rule 12b-1 Directors
will be committed to the discretion of the Rule 12b-1 Directors.
The Existing Class B Plan may be terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Directors or by the vote
of a majority of the outstanding Class B shares of the Fund (as defined in the
Investment Company Act) on written notice to any other party to such plan and
will automatically terminate in the event of its assignment (as defined in the
Investment Company Act). For a more detailed description of the Existing Class B
Plan, see "Management of the Fund -- The Distributors -- Class B Plan."
THE PROPOSED CLASS B PLAN
The Proposed Class B Plan amends the Existing Class B Plan in one material
respect. Under the Existing Class B Plan, the Fund reimburses Prudential
Securities for expenses actually incurred for Distribution Activities up to a
maximum of .75 of 1% per annum of the average daily net assets of the Class B
shares. In contrast, the Proposed Class B Plan authorizes the Fund to pay
Prudential Securities the same maximum annual fee as compensation for its
Distribution Activities. In contrast to the Existing Class B Plan, the amounts
payable by the Fund under the Proposed Class B Plan would not be directly
35
<PAGE>
related to the expenses actually incurred by Prudential Securities for its
Distribution Activities. Consequently, if Prudential Securities' expenses are
less than its distribution and service fees, it will retain its full fees and
realize a profit. However, if Prudential Securities' expenses exceed the
distribution and service fees received under the Proposed Class B Plan, it will
no longer carry forward such amounts for reimbursement in future years.
Since inception of the Existing Class B Plan, the cumulative reimbursable
expenses incurred thereunder by Prudential Securities have exceeded the amounts
reimbursed by the Fund. Since the maximum annual fee under the Existing Class B
Plan is the same as under the Proposed Class B Plan, Prudential Securities would
have received the same annual fee under the Proposed Class B Plan as it did
under the Existing Class B Plan for the fiscal years ended December 31, 1991,
1992 and 1993. As of December 31, 1993, the aggregate amount of distribution
expenses incurred and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges was approximately $11,763,000.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class B Plan, over a reimbursement type plan, such as the Existing
Class B Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order to
qualify for reimbursement. Although the Proposed Class B Plan will continue to
require quarterly reporting to the Board of Directors of the amounts accrued and
paid under the Plan and of the expenses actually borne by the Distributor, there
will be no need to match specific expenses to reimbursements and no carrying
forward of such amounts, as under the Existing Class B Plan. Thus, the
accounting for the Proposed Class B Plan would be simplified and the timing of
when expenditures are to be made by the Distributor would not be an issue.
Currently, because the Existing Class B Plan is a reimbursement plan, the
Distributor retains an independent expert to perform a study of its methodology
for determining and substantiating which of its expenses should properly be
allocated to the Fund's Class B shares for reimbursement, the cost of which is
borne by the Fund and other funds for which Prudential Securities serves as
Distributor. These considerations, combined with the fact that the cumulative
expenses incurred by Prudential Securities for Distribution Activities have
exceeded the amounts reimbursed by the Fund under the Existing Class B Plan,
suggest that the costs and efforts associated with a reimbursement plan are
unwarranted.
In considering whether to approve the Proposed Class B Plan, the Directors
reviewed, among other things, the nature and scope of the services to be
provided by Prudential Securities, the purchase options available to investors
under the
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<PAGE>
Alternative Purchase Plan, the amount of expenditures under the Existing Class B
Plan, the relationship of such expenditures to the overall cost structure of the
Fund, and comparative data with respect to distribution arrangements adopted by
other investment companies. Based upon such review, the Directors, including a
majority of the Rule 12b-1 Directors, determined that there is a reasonable
likelihood that the Proposed Class B Plan will benefit the Fund and its Class B
shareholders.
If approved by Class B shareholders, the Proposed Class B Plan will continue
in effect from year to year, provided such continuance is approved at least
annually by vote of a majority of the Board of Directors, including a majority
of the Rule 12b-1 Directors.
REQUIRED VOTE
The Proposed Class B Plan requires the approval of a majority of the Fund's
outstanding Class B shares as defined in the Investment Company Act and
described under Proposal No. 3 above. If the Proposed Class B Plan is not
approved, the Existing Class B Plan will continue in its present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.
APPROVAL OF ELIMINATION OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS REGARDING RESTRICTED
AND ILLIQUID SECURITIES
(PROPOSAL NO. 5)
On May 6, 1993, at the request of the Fund's Manager and Subadviser, the
Board of Directors considered and recommends for shareholder approval revision
of the Fund's fundamental investment restrictions regarding illiquid and
restricted securities. The current restrictions are overly confining in light of
the development of an active market in those securities that, although subject
to restrictions on resale, have a readily available market, such as securities
that are transferable under SEC Rule 144A. The Board of Directors recommends
elimination of the Fund's Investment Restriction No. 11, which limits the
purchase of any security that is restricted as to disposition under federal
securities laws.
Investment Restriction No. 11, which is proposed to be eliminated, currently
provides the Fund may not:
11. Purchase any security (other than OTC Options on U.S. Government
securities) restricted as to disposition under federal securities laws. (Since
any foreign securities acquired by the Fund will be disposed of only in a
foreign market, foreign securities are not regarded as restricted.)
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<PAGE>
Further, the Board recommends modification of Investment Restriction No. 14
to eliminate restrictions on investments in equity securities for which market
quotations are not readily available and repurchase agreements with maturities
of longer than 7 days and other illiquid assets.
Investment Restriction No. 14 is proposed to be amended as follows
(deletions are in brackets) to provide that the Fund may not:
14. Make loans, except through (i) repurchase agreements [(repurchase
agreements with a maturity of longer than 7 days together with other illiquid
assets being limited to 10% of the Fund's total assets)] and (ii) loans of
portfolio securities. (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.)
The Board recommends replacement of such fundamental investment restrictions
with a non-fundamental investment policy that could be modified by the vote of
the Board of Directors in response to regulatory or market developments without
further approval by shareholders. The change would expand the Fund's ability to
invest in securities which have restrictions on resale but have a readily
available institutional market, such as commercial paper and securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (the
Securities Act). The proposed non-fundamental policy would provide as follows:
The Fund may invest up to 15% 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 and certain commercial paper that have a readily available
market are not considered illiquid for purposes of this limitation. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable
notice period.
An open-end investment company may not hold a significant amount of
restricted securities or illiquid securities because such securities may present
problems of accurate valuation and because it is possible that the investment
company would have difficulty satisfying redemptions within seven days. The
proposed investment policy is not expected by the investment adviser or the
38
<PAGE>
Board of Directors to affect the Fund's liquidity because it excludes from
illiquid securities only those securities for which there is a readily available
market.
Historically, illiquid securities have been defined to include securities
subject to contractual or legal restrictions on resale, securities for which
there is no readily available market and repurchase agreements having a maturity
of longer than seven days. In recent years, however, the securities markets have
evolved significantly, with the result that new types of instruments have
developed which make the Fund's present restriction on illiquid investments
overly broad and unnecessarily restrictive in the view of the Fund's Manager. In
particular, the SEC adopted Rule 144A in April 1990, which allows for a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. SEC interpretations give directors of registered
investment companies the discretion to designate restricted securities as liquid
if the presence of a readily available market can be demonstrated and if a
current market value can be ascertained. In adopting Rule 144A, the SEC
recognized the increased size and liquidity of the institutional markets for
unregistered securities and the importance of institutional investors in the
capital formation process. In 1992, the SEC staff issued amended guidelines to
the effect that up to 15% (as opposed to 10%) of an open-end fund's net assets
may be invested in illiquid securities, including repurchase agreements with a
maturity of longer than seven days. The guidelines were amended in connection
with the SEC's efforts to remove unnecessary barriers to capital formation and
to facilitate access to the capital markets by small businesses.
The staff of the SEC has also taken the position that purchased over-the-
counter options and the assets used as "cover" for written over-the-counter
options are illiquid securities unless the Fund and the counterparty have
provided for the Fund, at the Fund's option, to unwind the over-the-counter
option. The exercise of such an option ordinarily would involve the payment by
the Fund of an amount designed to reflect the counterparty's economic loss from
an early termination, but does allow the Fund to treat the assets used as
"cover" as "liquid."
The proposed change would expand the Fund's ability to invest in securities
for which there is a readily available market and which have traditionally been
considered illiquid, but would permit the Fund to invest up to 15% of its net
assets in illiquid assets. The markets for certain corporate bonds and notes are
almost exclusively institutional. The institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold. In the opinion of the Fund's Manager, the fact that there are
restrictions
39
<PAGE>
on resale to the general public is therefore not necessarily indicative of the
liquidity of such investments. If designated as liquid (under the supervision of
the Board of Directors), these securities would be exempt from the 15%
limitation.
In order to take advantage of the increasingly liquid institutional trading
markets, the Manager recommends that the Fund eliminate its fundamental policies
regarding illiquid and restricted securities so that securities that are
nonetheless liquid may be purchased without regard to the current limitations.
By making the Fund's policy on illiquid securities non-fundamental, the Fund
will be able to respond more quickly to regulatory and market developments
because a shareholder vote will not be required to define what types of
securities should be deemed illiquid or to change the applicable permissible
percentage limitation. If this proposal is approved by shareholders, the Manager
and the Subadviser, under the supervision of the Board of Directors, will
monitor the liquidity of specific types of securities and, based on their
recommendations, the Board of Directors will from time to time determine whether
such securities should be deemed to be liquid with reference to legal,
regulatory and market developments.
In reaching liquidity decisions, the Manager and the Subadviser will
consider, INTER ALIA, the following factors:
1. the frequency of trades and quotes for the security;
2. the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers;
3. dealer undertakings to make a market in the security; and
4. the nature of the security and the nature of the marketplace trades
(E.G., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
The Board of Directors believes that adoption of Proposal No. 5 is in the
best interests of the Fund and its shareholders.
REQUIRED VOTE
Adoption of Proposal No. 5 requires the affirmative vote of the holders of a
majority of the outstanding voting securities. Under the Investment Company Act,
a majority of the Fund's outstanding voting securities is defined as the lesser
of (i) 67% of the Fund's outstanding voting shares represented at a meeting at
which more than 50% of the Fund's outstanding voting shares are present in
person or represented by proxy, or (ii) more than 50% of the Fund's
40
<PAGE>
outstanding voting shares. If the proposed change in investment policy is not
approved, the current limitations would remain a fundamental policy which could
not be changed without the approval of a majority of the outstanding voting
securities of the Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 5.
APPROVAL OF ELIMINATION OF THE FUND'S INVESTMENT
RESTRICTION LIMITING THE FUND'S ABILITY TO INVEST IN A
SECURITY IF THE FUND WOULD HOLD MORE THAN TEN PERCENT
OF ANY CLASS OF SECURITIES OF AN ISSUER
(PROPOSAL NO. 6)
On May 6, 1993, at the request of the Fund's Manager and Subadviser, the
Board of Directors considered and recommends for shareholder approval
elimination of Investment Restriction No. 5 to delete the restriction that
prohibits the Fund from purchasing a security if the Fund would hold thereafter
more than ten percent of any class of securities of an issuer.
The Fund currently may not purchase a security if the Fund would then hold
more than 10% of any class of securities of an issuer. Under this restriction,
all debt issues are each taken as a single class. Investment Restriction No. 5
currently provides that the Fund may not:
Purchase any security if as a result the Fund would then hold more than
10% of any class of securities of an issuer (taking all debt issues of an
issuer as a single class).
The Fund's Subadviser believes the restriction is confining and has
requested its deletion. This restriction, in its current form, is not required
under federal securities laws. If the proposal is approved, and a state
securities commission requires inclusion of this limitation, the Fund would
continue to comply with the restriction as a non-fundamental operating policy so
long as the Fund sells its shares in that state.
Currently, the Fund may not hold more than 10% of the outstanding voting
securities of an issuer pursuant to Section 5(b)(1) of the Investment Company
Act and state securities laws. This restriction would remain in effect.
The Board of Directors believes that adoption of Proposal No. 6 is in the
best interests of the Fund and its shareholders.
41
<PAGE>
REQUIRED VOTE
Adoption of Proposal No. 6 requires the approval of a majority of the
outstanding voting securities of the Fund, as defined in the Investment Company
Act and described under Proposal No. 5 above. If the proposed change in
investment policy is not approved, the current limitation would remain a
fundamental policy which could not be changed without the approval of a majority
of the outstanding voting securities of the Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 6.
APPROVAL OF ELIMINATION OF THE FUND'S INVESTMENT
RESTRICTION LIMITING INVESTMENT IN THE SECURITIES OF ANY
ISSUER IN WHICH THE OFFICERS AND DIRECTORS OF THE FUND
OR ITS INVESTMENT ADVISER OWN MORE THAN A SPECIFIED INTEREST
(PROPOSAL NO. 7)
On May 6, 1993, at the request of the Fund's Manager, the Board of Directors
considered and recommends for shareholder approval elimination of the Fund's
Investment Restriction No. 7, which provides that the Fund may not:
Purchase securities of any issuer if, to the knowledge of the Fund, any
officer or director of the Fund or of the Manager owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer.
The Manager has advised the Board of Directors that the restriction upon the
Fund's investing in companies in which officers and directors of the Fund or the
Manager own more than 1/2 of 1% of the outstanding securities of such company
was initially adopted to comply with a restriction imposed in connection with
the sale of the Fund's shares in Ohio. If the proposal is approved, the Fund
would continue to comply with the restriction as a non-fundamental operating
policy so long as the Fund sells its shares in Ohio. However, if Ohio were to
eliminate the requirement or the Fund stopped offering its shares for sale in
Ohio, the Board of Directors could eliminate the operating policy without the
necessity of shareholder approval. The Fund does not currently intend to stop
offering its shares in Ohio, nor are the Fund or the Fund's Manager aware of any
proposal to change the Ohio law.
The Board of Directors believes that adoption of Proposal No. 7 is in the
best interests of the Fund and its shareholders.
42
<PAGE>
REQUIRED VOTE
Amendment of the Fund's investment restrictions to delete Investment
Restriction No. 7 requires the approval of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act and described under
Proposal No. 5 above. If the proposed change in investment policy is not
approved, the current limitations would remain a fundamental policy which could
not be changed without the approval of a majority of the outstanding voting
securities of the Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 7.
APPROVAL OF AN AMENDMENT OF THE FUND'S ARTICLES OF
INCORPORATION TO CHANGE THE NAME OF THE FUND
(PROPOSAL NO. 8)
The Board of Directors proposes that the Fund's name be changed from
Prudential-Bache GNMA Fund, Inc. to Prudential GNMA Fund, Inc. and that the
Articles of Incorporation of the Fund be amended to effect the name change. The
Fund is currently doing business under the name Prudential GNMA Fund.
The Board of Directors considered the proposed name change from
"Prudential-Bache" to "Prudential" in connection with the change in the name of
Prudential-Bache Securities Inc. to Prudential Securities Incorporated
(Prudential Securities), Distributor of the Fund's Class B shares. Management of
the Fund expressed its opinion that the proposed name, "Prudential GNMA Fund,
Inc." more accurately reflects the Fund's affiliation with PMF, Prudential
Securities and The Prudential Insurance Company of America, their parent
company.
The Board of Directors believes that adoption of Proposal No. 8 is in the
best interests of the Fund and its shareholders.
REQUIRED VOTE
The name change must be approved by the holders of a majority of the Fund's
shares of common stock in accordance with the Fund's Articles of Incorporation.
The name change will be effected as soon as is practicable after shareholder
approval. If this proposal is not approved, the Board of Directors will consider
whether it is appropriate for the Fund to continue to do business under the name
Prudential GNMA Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 8.
43
<PAGE>
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 9)
The Board of Directors of the Fund, including Directors who are not
interested persons of the Fund, has selected Price Waterhouse as independent
accountants for the Fund for the fiscal year ending December 31, 1994. The
ratification of the selection of independent accountants is to be voted upon at
the Meeting and it is intended that the persons named in the accompanying Proxy
will vote for Price Waterhouse. No representative of Price Waterhouse is
expected to be present at the Meeting of Shareholders.
The policy of the Board of Directors' regarding engaging independent
accountants' services is that management may engage the Fund's principal
independent accountants to perform any service(s) normally provided by
independent accounting firms, provided that such service(s) meet(s) any and all
of the independence requirements of the American Institute of Certified Public
Accountants and the SEC. In accordance with this policy, the Audit Committee
reviews and approves all services provided by the independent public accountants
prior to their being rendered. The Board of Directors of the Fund receives a
report from its Audit Committee relating to all services after they have been
performed by the Fund's independent accountants.
REQUIRED VOTE
The affirmative vote of a majority of the shares present, in person or by
proxy, at the Meeting is required for ratification.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 9.
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of shareholders arise,
including any question as to an adjournment of the Meeting, the persons named in
the enclosed Proxy will vote thereon according to their best judgment in the
interests of the Fund.
44
<PAGE>
SHAREHOLDER PROPOSALS
The Fund is not required to hold annual meetings of shareholders and the
Board of Directors currently does not intend to hold such meetings unless
shareholder action is required in accordance with the Investment Company Act or
the Fund's By-laws. A shareholder proposal intended to be presented at any
meeting of shareholders of the Fund hereinafter called must be received by the
Fund a reasonable time before the Board of Directors' solicitation relating
thereto is made in order to be included in the Fund's proxy statement and form
of Proxy relating to that meeting and presented at the meeting. The mere
submission of a proposal by a shareholder does not guarantee that such proposal
will be included in the proxy statement because certain rules under the Federal
securities laws must be complied with before inclusion of the proposal is
required.
S. JANE ROSE
SECRETARY
Dated: April 18, 1994
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
45
<PAGE>
EXHIBIT A
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
ASSETS
<TABLE>
<S> <C>
CASH AND SHORT-TERM INVESTMENTS....................... $42,667,507
LOAN TO AFFILIATE..................................... 85,000,000
MANAGEMENT, ADMINISTRATION AND OTHER FEES
RECEIVABLE........................................... 17,897,292
TRANSFER AGENCY AND FIDUCIARY FEES RECEIVABLE......... 3,744,874
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
NET.................................................. 10,495,702
OTHER ASSETS.......................................... 4,676,430
-----------
$164,481,805
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to affiliates................................... $48,794,366
Accounts payable and accrued expenses............... 11,208,209
Income taxes payable to affiliate -- net............ 2,937,828
-----------
62,940,403
-----------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value (1,000 shares
authorized, 850 shares outstanding)................ 850
Class B common stock, $1 par value (1,000 shares
authorized, 150 shares outstanding)................ 150
Additional paid-in capital.......................... 24,999,000
Retained earnings................................... 76,541,402
-----------
101,541,402
-----------
$164,481,805
-----------
-----------
</TABLE>
See notes to consolidated statement of financial condition.
A-1
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prudential Mutual Fund Management, Inc. ("PMF") and subsidiaries (the
"Company"), an indirect wholly-owned subsidiary of The Prudential Insurance
Company of America (the "Prudential"), were created to operate as the manager,
distributor and/or transfer agent for investment companies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statement includes the accounts of PMF and its
wholly-owned subsidiaries, Prudential Mutual Fund Services, Inc. ("PMFS") and
Prudential Mutual Fund Distributors, Inc. ("PMFD"). All intercompany profits,
transactions and balances have been eliminated.
INCOME TAXES
The Company is a member of a group of affiliated companies which join in
filing a consolidated Federal income tax return. Pursuant to a tax allocation
agreement, tax expense is determined for individual profitable companies on a
separate return basis. Profit members pay this amount to an affiliated company
which in turn apportions the payment among the loss members in proportion to
their losses. In January 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
adoption of SFAS 109 did not have a material effect on the Company's financial
position.
2. SHORT-TERM INVESTMENTS
At December 31, 1993, the Company had invested $35,411,571 in several money
market funds which PMF manages.
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<S> <C>
Furniture...................................... $6,481,799
Equipment...................................... 9,181,984
Leasehold improvements......................... 3,407,213
----------
19,070,996
Less accumulated depreciation and
amortization.................................. 8,575,294
----------
$10,495,702
----------
----------
</TABLE>
A-2
<PAGE>
4. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company participates in a variety of
financial and administrative transactions with affiliates.
The loan to affiliate bears interest at 3.45 percent at December 31, 1993
and is due on demand.
The caption "Due to affiliates" includes $18,241,795 at December 31, 1993
for reimbursement of employee compensation and benefits, and other
administrative and operating expenses. This amount is noninterest-bearing and
payable on demand.
The Company has entered into subadvisory agreements with The Prudential
Investment Corporation ("PIC"), a wholly-owned subsidiary of Prudential. Under
these agreements, PIC furnishes investment advisory services to substantially
all the funds for which the Company acts as Manager. At December 31, 1993 there
were unpaid fees due to PIC of $23,926,277, included in the caption "Due to
affiliates."
Distribution expenses include commissions and account servicing fees paid
to, or on account of, financial advisors of Prudential Securities Incorporated
("Prudential Securities") and Pruco Securities Corporation ("PruSec"),
affiliated broker-dealers and indirect wholly-owned subsidiaries of Prudential,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors, and indirect and overhead costs of Prudential Securities and PruSec,
including lease, utility, communications and sales promotion expenses. At
December 31, 1993 there were unpaid distribution expenses of approximately
$6,626,000, included in the caption "Due to affiliates."
5. CAPITAL
PMFD is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1), which
requires the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. At December 31, 1993, PMFD had net capital of $2,308,981, which was
$1,859,405 in excess of its required net capital of $449,576. PMFD had a ratio
of aggregate indebtedness to net capital of 2.9 to 1.
A-3
<PAGE>
6. COMMITMENTS
The Company leases office space under operating leases expiring in 2003. The
leases are subject to escalation based upon certain costs incurred by the
lessor. Future minimum rentals, as of December 31, 1993, under the leases, are
as follows:
<TABLE>
<CAPTION>
YEAR MINIMUM RENTAL
- -------------------------------------------------------- ----------------
<S> <C>
1994.................................................... $ 2,738,000
1995.................................................... 2,865,000
1996.................................................... 3,375,000
1997.................................................... 3,385,000
1998.................................................... 3,230,000
Thereafter.............................................. 13,800,000
----------------
$ 29,393,000
----------------
----------------
</TABLE>
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has two defined benefit pension plans (the "Plans") sponsored by
the Prudential and Prudential Securities. The Plans cover substantially all of
the Company's employees. The funding policy is to contribute annually the amount
necessary to satisfy the Internal Revenue Service funding standards. In
addition, the Company has two defined benefit plans for key executives, the
Supplemental Retirement Plan (SRP) for which estimated pension costs are
currently accrued but not funded.
The Company provides certain health care and life insurance benefits for
eligible retired employees. Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS 106 changed the
practice of accounting for postretirement benefits on a cash basis to an accrual
basis, whereby employers record the projected future cost of providing such
postretirement benefits as employees render services instead of when benefits
are paid. This new accounting method has no effect on the Company's cash outlays
for these retirement benefits. The adoption of SFAS 106 did not materially
impact the Company's financial position.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," ("SFAS 112") which is effective for fiscal years beginning after
December 15, 1993. Although several benefits are fully insured which result in
no SFAS 112 obligation, the Company currently has an obligation and resulting
A-4
<PAGE>
7. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
expense under SFAS 112 for medical benefits provided under long-term disability.
The Company will adopt SFAS 112 on January 1, 1994. Management believes that
implementation will have no material effect on the Company's financial position.
8. CONTINGENCY
On October 12, 1993, a purported class action lawsuit was instituted against
PMF, et al and certain current and former directors of a fund managed by PMF.
The plaintiffs seek damages in an unspecified amount for excessive management
and distribution fees they allege were incurred by them. Although the outcome of
this litigation cannot be predicted at this time, the defendants believe they
have meritorious defenses to the claims asserted in the complaint and intend to
defend this action vigorously. In any case, management does not believe that the
outcome of this action is likely to have a material adverse effect on the
Company's financial position.
A-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Prudential Mutual Fund Management, Inc.:
We have audited the accompanying consolidated statement of financial
condition of Prudential Mutual Fund Management, Inc. and subsidiaries as of
December 31, 1993. This consolidated financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statement is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated statement of
financial condition. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated statement of financial condition presents
fairly, in all material respects, the financial position of Prudential Mutual
Fund Management, Inc. and subsidiaries at December 31, 1993 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE
New York, New York
January 26, 1994
A-6
<PAGE>
EXHIBIT B
FORM OF AMENDMENT TO ARTICLES OF INCORPORATION
Article V, Section 1 of the Fund's Articles of Incorporation is proposed to
be amended and restated as follows:
ARTICLE V
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 500,000,000 shares of the par value
of $.0l per share and of the aggregate par value of $5,000,000 to be divided
initially into three classes, consisting of 166,666,666 shares of Class A Common
Stock, 166,666,666 shares of Class B Common Stock and 166,666,668 shares of
Class C Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights except that (i)
Expenses related to the distribution of each class of shares shall be borne
solely by such class; (ii) The bearing of such expenses solely by shares of
each class shall be appropriately reflected (in the manner determined by the
Board of Directors) in the net asset value, dividends, distribution and
liquidation rights of the shares of such class; (iii) The Class A Common
Stock shall be subject to a front-end sales load and a Rule 12b-1
distribution fee as determined by the Board of Directors from time to time;
(iv) The Class B Common Stock shall be subject to a contingent deferred
sales charge and a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time; and (v) The Class C Common Stock shall 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
B-1
<PAGE>
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 for purposes of sales and redemptions thereof at
the time of the calculation of the net asset value on the Conversion Date by
the net asset value per share of the Class A Common Stock for purposes of
sales and redemptions thereof at the time of the calculation of the net
asset value on the Conversion Date.
(d) On the Conversion Date, the shares of the Class B Common Stock of
the Corporation converted into shares of the Class A Common Stock will cease
to accrue dividends and will no longer be outstanding and the rights of the
holders thereof will cease (except the right to receive declared but unpaid
dividends to the Conversion Date).
(e) The Board of Directors shall have full power and authority to adopt
such other terms and conditions concerning the conversion of shares of the
Class B Common Stock to shares of the Class A Common Stock as they deem
appropriate; provided such terms and conditions are not inconsistent with
the terms contained in this Section 1 and subject to any restrictions or
requirements under the Investment Company Act of 1940 and the rules,
regulations and interpretations thereof promulgated or issued by the
Securities and Exchange Commission, any conditions or limitations contained
in an order issued by the Securities and Exchange Commission applicable to
the Corporation, or any restrictions or requirements under the Internal
Revenue Code of 1986, as amended, and the rules, regulations and
interpretations promulgated or issued thereunder.
B-2
<PAGE>
EXHIBIT C
PRUDENTIAL GNMA FUND
DISTRIBUTION AND SERVICE PLAN
(CLASS A SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential GNMA Fund, Inc. (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement 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 of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class A shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
C-1
<PAGE>
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. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of
.25 of 1% per annum of the average daily net assets of the Class A shares
(service fee). The Fund shall calculate and accrue daily amounts payable by
the Class A shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2
hereof), of .30 of 1% per annum of the average daily net assets of the Class
A shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class A shares
of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any
other class of shares of the Fund except that distribution expenses
attributable to the Fund as a whole will be allocated to the Class A shares
according to the ratio of the sales of Class A shares to the total sales of
the Fund's shares over the Fund's fiscal year or such other allocation
method approved by the Board of Directors. The allocation of distribution
expenses among classes will be subject to the review of the Board of
Directors.
C-2
<PAGE>
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 Class A shares of
the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of
Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for which
such expenditures were made in compliance with the requirements of Rule
12b-1. The Distributor will provide to the Board of Directors of the Fund
such additional information as the Board or Trustees shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
C-3
<PAGE>
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities
of the Class A shares of the Fund, the Plan shall, unless earlier terminated
in accordance with its terms, continue in full force and effect thereafter
for so long as such continuance is specifically approved at least annually
by a majority of the Board of Directors of the Fund and a majority of the
Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares
of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and 3 hereof
so as to increase materially the amounts payable under this Plan unless such
amendment shall be approved by the vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class A
shares of the Fund. All material amendments of the Plan shall be approved by
a majority of the Board of Directors of the Fund and a majority of the Rule
12b-1 Directors by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. RULE 12B-1 DIRECTORS
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less
than six years from the date of effectiveness of the Plan, such agreements
or reports, and for at least the first two years in an easily accessible
place.
Dated:
C-4
<PAGE>
EXHIBIT D
PRUDENTIAL GNMA FUND
DISTRIBUTION AND SERVICE PLAN
(CLASS B SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential GNMA Fund, Inc. (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will 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 of the Fund including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures under this Plan by the
Fund for Distribution Activities (defined below) are primarily intended to
result in the sale of Class B shares of the Fund within the meaning of paragraph
(a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
D-1
<PAGE>
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. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of
.25 of 1% per annum of the average daily net assets of the Class B shares
(service fee). The Fund shall calculate and accrue daily amounts payable by
the Class B shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2
hereof), of .75 of 1% per annum of the average daily net assets of the Class
B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares
of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any
other class of shares of the Fund except that distribution expenses
attributable to the Fund as a whole will be allocated to the Class B shares
according to the ratio of the sale of Class B shares to the total sales of
the Fund's shares over the Fund's fiscal year or such other allocation
method
D-2
<PAGE>
approved by the Board of Directors. The allocation of distribution expenses
among classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class B
shares of the Fund, including sales commissions and trailer commissions
paid to, or on account of, agents and indirect and overhead costs
associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports and
sales literature to persons other than current shareholders of the Fund;
and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prusec) which have entered into selected dealer agreements with the
Distributor with respect to Class B shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of
Directors of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for which
such expenditures were made in compliance with the requirements of the Rule
12b-1. The Distributor will provide to the Board of Directors of the Fund
such additional information as they shall from time to time reasonably
request, including information about Distribution Activities undertaken or
to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to
D-3
<PAGE>
account executives of the Distributor and to broker-dealers and other
financial institutions which have selected dealer agreements with the
Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities
of the Class B shares of the Fund, the Plan shall, unless earlier terminated
in accordance with its terms, continue in full force and effect thereafter
for so long as such continuance is specifically approved at least annually
by a majority of the Board of Directors of the Fund and a majority of the
Rule 12b-1 Directors by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class B shares
of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and 3 hereof
so as to increase materially the amounts payable under this Plan unless such
amendment shall be approved by the vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Class B
shares of the Fund. All material amendments of the Plan shall be approved by
a majority of the Board of Directors of the Fund and a majority of the Rule
12b-1 Directors by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. RULE 12B-1 DIRECTORS
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the discretion of the Rule 12b-1
Directors.
D-4
<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.
Dated:
D-5
<PAGE>
PLEASE MARK, SIGN,
DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PROXY (CLASS A)
YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY.
PRUDENTIAL GNMA FUND (CLASS A)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Susan C. Cote, S. Jane Rose and Deborah A. Docs
as proxies, each with the power of substitution, and hereby authorizes each of
them to represent and to vote, as designated below, all the shares of Class A
common stock of Prudential GNMA Fund held of record by the undersigned on
March 31, 1994 at the Special Meeting of Shareholders to be held on June 23,
1994, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL THE PROPOSALS LISTED BELOW.
Your Account No.:
Your voting shares are:
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
1. Election of Directors
APPROVE ALL NOMINEES WITHHOLD ALL NOMINEES WITHHOLD THOSE LISTED ON BACK
TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, PLEASE WRITE NAME ON BACK OF
FORM.
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
<TABLE>
<S> <C> <C> <C>
2. To approve an amendment of the Fund's Articles of Incorporation to permit a FOR AGAINST ABSTAIN
conversion feature for Class B shares. / / / / / /
3. To approve an amended and restated Class A Distribution and Service Plan. / / / / / /
4. Not applicable to Class A Shareholders. / / / / / /
5. To approve elimination of the Fund's investment restrictions regarding
restricted and illiquid securities. / / / / / /
6. To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to purchase any security if the Fund would hold more than
10% of any class of securities of an issuer. / / / / / /
7. To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to invest in the securities of any issuer in which officers
and Directors of the Fund or officers and directors of its investment adviser
more than a specified interest. / / / / / /
8. To approve an amendment of the Fund's Articles of Incorporation to change
the name of the Fund to "Prudential GNMA Fund, Inc." / / / / / /
9. To ratify the selection by the Board of Directors of Price Waterhouse as
independent accountants for the fiscal year ending December 31, 1994. / / / / / /
10. To transact such other business as may properly come before the meeting of
any adjournment thereof. / / / / / /
</TABLE>
Only shares of common stock of the Fund of record at the close of business on
March 31, 1994 are entitled to notice of and to vote at the Meeting or any
adjournment thereof.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
_______________________________________
SIGNATURE DATE
_______________________________________
SIGNATURE (JOINT OWNERSHIP)
<PAGE>
PLEASE MARK, SIGN,
DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PROXY (CLASS B)
YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY.
PRUDENTIAL GNMA FUND
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Susan C. Cote, S. Jane Rose and Deborah A. Docs
as proxies, each with the power of substitution, and hereby authorizes each of
them to represent and to vote, as designated below, all the shares of Class B
common stock of Prudential GNMA Fund held of record by the undersigned on
March 31, 1994 at the Special Meeting of Shareholders to be held on June 23,
1994, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL THE PROPOSALS LISTED BELOW.
Your Account No.:
Your voting shares are:
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
1. Election of Directors
APPROVE ALL NOMINEES WITHHOLD ALL NOMINEES WITHHOLD THOSE LISTED ON BACK
TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, PLEASE WRITE NAME ON BACK OF
FORM.
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. To approve an amendment of the Fund's Articles of Incorporation to permit a
conversion feature for Class B shares. / / / / / /
3. To approve an amended and restated Class A Distribution and Service Plan. / / / / / /
4. To approve an amended and restated Class B Distribution and Service Plan. / / / / / /
5. To approve elimination of the Fund's investment restrictions regarding
restricted and illiquid securities. / / / / / /
6. To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to purchase any security if the Fund would hold more than
10% of any class of securities of an issuer. / / / / / /
7. To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to invest in the securities of any issuer in which officers
and directors of the Fund or officers and directors of its investment adviser
own more than a specified interest. / / / / / /
8. To approve an amendment of the Fund's Articles of Incorporation to change
the name of the Fund to "Prudential GNMA Fund, Inc." / / / / / /
9. To ratify the selection by the Board of Directors of Price Waterhouse as
independent accountants for the fiscal year ending December 31, 1994. / / / / / /
10. To transact such other business as may properly come before the meeting or
any adjournment thereof. / / / / / /
</TABLE>
Only shares of common stock of the Fund of record at the close of business on
March 31, 1994 are entitled to notice of and to vote at the Meeting or any
adjournment thereof.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- ------------------------------------------------------
SIGNATURE DATE
- ------------------------------------------------------
SIGNATURE (JOINT OWNERSHIP)
