<PAGE>
PRELIMINARY COPY
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PRUDENTIAL-BACHE GOVERNMENT PLUS FUND, INC.
________________________________________________________________________________
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PRUDENTIAL-BACHE GOVERNMENT PLUS 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>
PRELIMINARY COPY
PRUDENTIAL GOVERNMENT PLUS 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 Government Plus Fund, Inc., doing business as Prudential
Government Plus Fund (the Fund), will be held at 3:00 P.M. on [ ] 1994, at
199 Water Street, New York, N.Y. 10292, for the following purposes:
1. To elect Directors.
2. To approve an amendment of the Fund's Articles of Incorporation to
permit a conversion feature for Class B Shares.
3. To approve an amended and restated Class A Distribution and Service
Plan.
4. To approve an amended and restated Class B Distribution and Service
Plan.
5. To approve an amendment of the Fund's investment restrictions to
clarify that collateral arrangements with respect to interest rate swap
transactions, reverse repurchase agreements and dollar roll transactions are
not deemed to be the issuance of a senior security or the pledge of assets.
6. To approve elimination of the Fund's investment restrictions
regarding restricted and illiquid securities.
7. 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.
8. 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.
9. To approve an amendment of the Fund's Articles of Incorporation to
change the name of the Fund to "Prudential Government Income Fund, Inc."
10. To ratify the selection by the Board of Directors of Deloitte &
Touche as independent accountants for the fiscal year ending February 28,
1995.
11. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Only shares of Common Stock of the Fund of record at the close of business
on [ ] 1994 are entitled to notice of and to vote at this Meeting or
any adjournment thereof.
S. JANE ROSE
SECRETARY
March , 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 GOVERNMENT PLUS FUND
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
------------------------
PROXY STATEMENT
------------------------
This statement is furnished by the Board of Directors of Prudential-Bache
Government Plus Fund, Inc., doing business as Prudential Government Plus Fund
(the Fund), in connection with its solicitation of proxies for use at a Special
Meeting of Shareholders to be held at 3:00 P.M. on [ ,] 1994 at 199 Water
Street, New York, New York 10292, the Fund's principal executive office. The
purpose of the Meeting and the matters to be acted upon are set forth in the
accompanying Notice of Special Meeting.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted for the election of Directors and for each of the other proposals.
A Proxy may be revoked at any time prior to the time it is voted by written
notice to the Secretary of the Fund or by attendance at the Meeting. If
sufficient votes to approve one or more of the proposed items are not received,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares present at the Meeting or
represented by proxy. When voting on a proposed adjournment, the persons named
as proxies will vote for the proposed adjournment all shares that they are
entitled to vote with respect to each item, unless directed to disapprove the
item, in which case such shares will be voted against the proposed adjournment.
If a Proxy that is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote" (that
is, a Proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominee does
not have discretionary power), the shares represented thereby will be considered
not to be present at the Meeting for purposes of determining the existence of
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 [ ,] 1994 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
Meeting. On that date, the Fund had [ ] shares of Common Stock
outstanding and entitled to vote, consisting of [ ] Class A shares and
[ ] Class B shares. Each share will be entitled to one vote at the
Meeting. It is expected that the Notice of Special Meeting, Proxy Statement and
form of Proxy will first be mailed to shareholders on or about March , 1994.
Management does not know of any person or group who owned beneficially 5% or
more of the outstanding shares of either class of Common Stock of the Fund as of
[ ,] 1994.
The expense of solicitation will be borne by the Fund and will include
reimbursement of brokerage firms and others for expenses in forwarding proxy
solicitation material to beneficial owners. The solicitation of proxies will be
largely by mail. The Board of Directors of the Fund has authorized management to
retain Shareholder Communications Corporation, a proxy solicitation firm, to
assist in the solicitation of proxies for this Meeting. This cost, including
specified expenses, is not expected to exceed $100,000 and will be borne by the
Fund. In addition, solicitation may include, without cost to the Fund,
telephone, telegraphic or oral communication by regular employees of Prudential
Securities Incorporated (Prudential Securities) and its affiliates.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Meeting, 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, Delayne D. Gold, Harry A. Jacobs, Jr., Lawrence C.
McQuade, Thomas T. Mooney, Thomas H. O'Brien, Thomas A. Owens, Jr., Richard A.
Redeker and Stanley E. Shirk, all of whom are currently members of the Board of
Directors. Each of the nominees has consented to be
2
<PAGE>
named in this Proxy Statement and to serve as a Director if elected. All of the
current members of the Board of Directors, except Richard A. Redeker, have
previously been elected by the shareholders. Mr. McQuade has served as President
and Director since February 11, 1989. Mrs. Gold has served as a Director since
April 8, 1983; Mr. Jacobs served as a Director from April 8, 1983 to December
20, 1984 and was reelected at a Board meeting held on February 13, 1985; Mr.
Owens has served as a Director since August 9, 1983; Messrs. Beach, O'Brien and
Shirk have served as Directors since February 13, 1985; Mr. Mooney has served as
a Director since December 18, 1985. Mr. Redeker has served as a Director since
October 20, 1993.
The Board of Directors has no reason to believe that any of the nominees
named above will become unavailable for election as a Director, but if that
should occur before the Meeting, proxies will be voted for such persons as the
Board of Directors may recommend.
The Fund's By-laws provide that the Fund will not be required to hold annual
meetings of shareholders if the election of Directors is not required under the
Investment Company Act of 1940, as amended (the Investment Company Act). It is
the present intention of the Board of Directors of the Fund not to hold annual
meetings of shareholders unless such shareholder action is required.
INFORMATION REGARDING DIRECTORS
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Edward D. Beach (69), President and Director of BMC Fund, Inc., a Director -0-
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, The
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Global 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
Equity Income Fund, Prudential FlexiFund, Prudential Municipal Bond
Fund and Prudential Municipal Series Fund.
Delayne D. Gold (55), Marketing and Management Consultant; Director of Director -0-
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
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
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 1986) of Director [7,787]
Prudential Securities; formerly Interim Chairman and Chief Executive
Officer of Prudential Mutual Fund Management, Inc. (PMF)
(June-September 1993); Chairman of the Board of Prudential Securities
(1982-1985) and Chairman of the Board and Chief Executive Officer of
Bache 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,
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Inc., Prudential MoneyMart Assets, Prudential National Municipals Fund,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global
Income Fund, Inc., Prudential Special Money Market Fund, Prudential
Structured Maturity Fund, Prudential Tax-Free Money Fund, Prudential
Utility Fund, The First Australia Fund, Inc., The First Australia Prime
Income Fund, Inc., The Global Government Plus Fund, Inc. and The Global
Yield Fund, Inc.; Trustee of the Trudeau Institute, The BlackRock
Government Income Trust, Command Money Fund, Command Government Fund,
Command Tax-Free Fund, Prudential California Municipal Fund, Prudential
Municipal Series Fund and Prudential U.S. Government Fund.
*Lawrence C. McQuade (66), Vice Chairman of PMF (since 1988); Managing President and -0-
Director, Investment Banking, Prudential Securities (1988-1991); Director
Director of Quixote Corporation (since February 1992) and BUNZL, PLC
(since June 1991); formerly Director of Crazy Eddie Inc. (1987-1990)
and Kaiser Tech, Ltd. and Kaiser Aluminum and Chemical Corp. (March
1987-November 1988); formerly Executive Vice President and
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Director of WR Grace & Company; President and Director of Prudential
Adjustable Rate Securities Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Global Fund, Inc., Prudential Global Genesis Fund,
Prudential Global Natural Resources Fund, Prudential GNMA Fund,
Prudential Government Plus Fund, Prudential Growth Fund, Inc.,
Prudential Growth Opportunity Fund, Prudential High Yield Fund,
Prudential IncomeVertible-R- Fund, Inc., Prudential Institutional
Liquidity Portfolio, Inc., Prudential Intermediate Global Income Fund,
Inc., Prudential MoneyMart Assets, Prudential Multi-Sector Fund, Inc.,
Prudential National Municipals Fund, Prudential Pacific Growth Fund,
Inc., Prudential Short-Term Global Income Fund, Inc., Prudential
Special Money Market Fund, Prudential Structured Maturity Fund,
Prudential Tax-Free Money Fund, Prudential Utility Fund, The Global
Government Plus Fund, Inc., The Global Yield Fund, Inc. and The High
Yield Income Fund, Inc.; President and Trustee of The BlackRock
Government Income Trust, Command Government Fund, Command Money Fund,
Command Tax-Free Fund,
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
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 Chamber Director -0-
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., Industrial
Management Council, Inc., Executive Service Corps of Rochester, Monroe
County Industrial Development Corporation, Global Utility 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., 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,
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Prudential Equity Income Fund, Prudential FlexiFund, Prudential
Municipal Bond Fund and Prudential Municipal Series Fund.
Thomas H. O'Brien (69), President, O'Brien Associates (financial and Director [5,630]
management consultants) (since April 1984); formerly President of
Jamaica Water Securities Corp. (holding company) (February 1989-August
1990); Chairman, Chief Executive Officer (September 1987-February 1989)
and Director (September 1987-April 1991) 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 Adjustable Rate Securities Fund, Inc., Prudential Equity
Fund, Inc., Prudential GNMA Fund and Prudential Government Plus Fund,
Trustee of Hofstra University; Trustee of Prudential California
Municipal Fund and Prudential Municipal Series Fund.
Thomas A. Owens, Jr. (71), Consultant; Director of Prudential Adjustable Director -0-
Rate Securities Fund, Inc., Prudential Global Fund, Inc., Prudential
Government Plus Fund,
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Prudential Growth Fund, Inc., Prudential IncomeVertible-R- Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential MoneyMart
Assets, Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential Structured Maturity Fund and
Prudential Utility Fund; Trustee of Prudential U.S. Government Fund.
*Richard A. Redeker (50), President, Chief Executive Officer and Director Director -0-
(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); formerly 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
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Liquidity Portfolio, Inc., Prudential Intermediate Global Income Fund,
Inc., Prudential MoneyMart Assets, Prudential Multi-Sector Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global
Income Fund, Inc., Prudential Special Money Market Fund, Prudential
Structured Maturity Fund, Prudential Utility Fund, The Global Yield
Fund, Inc., The Global Government Plus Fund, Inc., and The High Yield
Income Fund, Inc.; Trustee of The BlackRock Government Income Trust,
Command Government Fund, Command Money Fund, Command Tax-Free Fund,
Prudential California Municipal Fund, Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential U.S. Government Fund, and The Target
Portfolio Trust.
Stanley E. Shirk (77), Certified Public Accountant and a former Senior Director -0-
Partner of the accounting firm of KPMG Peat Marwick; former Management
and Accounting Consultant for the Association of Bank Holding
Companies, Washington, D.C. and the Bank Administration Institute,
Chicago, IL.; Director of Prudential Adjustable Rate
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED AT
NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND POSITION WITH [ ,]
DIRECTORSHIPS FUND 1994
- ------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Securities Fund, Inc., Prudential Government Plus Fund, Prudential
Institutional Liquidity Portfolio, Inc., Prudential Special Money
Market Fund and The High Yield Income Fund, Inc.; Trustee of The
BlackRock Government Income Trust, Command Government Fund, Command
Money Fund, Command Tax-Free Fund and The Target Portfolio Trust.
<FN>
- ------------------------
* Indicates "interested" Director, as defined in the Investment Company Act, by
reason of his affiliations with PMF or Prudential Securities.
</TABLE>
The Directors and officers of the Fund as a group owned beneficially [ ]
shares of the Fund as of [ ,] 1994 representing less than 1% of the
outstanding shares of the Fund.
The Fund pays annual compensation of $8,000, 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 February 28, 1993 and the
six-month period ended August 31, 1993 the Fund paid Directors' fees of $48,000
and $24,000 respectively, and travel and incidental expenses of approximately
$3,970 and $5,300, respectively. Messrs. Beach and O'Brien each receives his
respective Director's fees pursuant to a deferred fee agreement with the Fund.
12
<PAGE>
There were four regular meetings and three special meetings of the Fund's
Board of Directors held during the fiscal year ended February 28, 1993 and three
regular meetings and two special meetings held during the period from March 1,
1993 through December 31, 1993. The Board of Directors presently has an Audit
Committee, the members of which are Ms. Gold and Messrs. Beach, Mooney, O'Brien,
Owens and Shirk, the Fund's non-interested Directors. The Audit Committee met
twice during the fiscal year ended February 28, 1993 and once during the period
from March 1, 1993 through December 31, 1993. The Audit Committee makes
recommendations to the full Board with respect to the engagement of independent
accountants and reviews with the independent accountants the plan and results of
the audit engagement and matters having a material effect upon the Fund's
financial operations. The Board also has a Nominating Committee, comprised of
the Fund's non-interested Directors, which selects and proposes candidates for
election to the Board of Directors. The Nominating Committee met once during the
fiscal year ended February 28, 1993 and twice during the period from March 1,
1993 through December 31, 1993. The Nominating Committee does not consider
nominees recommended by shareholders to fill vacancies on the Board.
During the fiscal year ended February 28, 1993, Mr. Jacobs attended fewer
than 75% of the aggregate of the total number of meetings of the Board of
Directors and any committees thereof of which he was a member. For the period
from March 1, 1993 through December 31, 1993, Mr. Mooney attended fewer than 75%
of the aggregate of the total number of meetings of the Board of Directors and
any committees thereof of which he was a member.
The executive officers of the Fund, other than as shown above, are S. Jane
Rose, Secretary, having held office since January 2, 1985; Robert F. Gunia, Vice
President, and Susan C. Cote, Treasurer and Principal Financial and Accounting
Officer, both having held office since October 13, 1987; and Domenick Pugliese,
Assistant Secretary, having held office since July 8, 1992. 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 Senior Vice President (since
March 1987) of Prudential Securities. He is also Vice President and Director
(since May 1989) of the Asia Pacific Fund, Inc. Ms. Cote is 39 years old and is
Senior Vice President (since January 1989) of PMF and a Senior Vice President of
Prudential Securities (since January 1992). Prior thereto, she was Vice
President (January 1986-December 1991) of Prudential Securities. Ms. Rose is 48
years old and is Senior Vice President (since January 1991) and Senior Counsel
(since June 1987) of PMF and a Senior Vice President and Senior Counsel of
13
<PAGE>
Prudential Securities (since July 1992). Prior thereto, she was First Vice
President (June 1987-December 1990) of PMF and Vice President and Associate
General Counsel of Prudential Securities. Mr. Pugliese is 32 years old and is a
Vice President (since July 1992) and Associate General Counsel (since March
1992) of PMF and Vice President and Associate General Counsel (since July 1992)
of Prudential Securities. Prior thereto, he was an Associate with the law firm
of Battle Fowler. The executive officers of the Fund are elected annually by the
Board of Directors.
REQUIRED VOTE
Directors must be elected by a vote of a plurality of the shares present at
the meeting in person or by proxy and entitled to vote thereupon, provided that
a quorum is present.
MANAGEMENT OF THE FUND
THE MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, serves as the Fund's Manager under a management
agreement dated as of July 1, 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 April 15, 1993 and was approved by shareholders on March 30, 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
14
<PAGE>
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;
(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
up to $3 billion and .35 of 1% of the average daily net assets in excess of $3
billion. This fee is computed daily and paid monthly. For the fiscal year ended
February 28, 1993, PMF received a management fee of $13,588,678. For the
six-month period ended August 31, 1993, PMF received a management fee of
$6,672,336.
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 February 28,
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.
15
<PAGE>
Except as indicated above, the Fund is responsible under the Management
Agreement for the payment of its expenses, including (a) the fees payable to
PMF, (b) the fees and expenses of Directors who are not affiliated with PMF or
the investment adviser, (c) the fees and certain expenses of the Fund's
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records of the Fund and of pricing Fund shares, (d) the charges and
expenses of the Fund's legal counsel and independent accountants, (e) brokerage
commissions and any issue or transfer taxes chargeable to the Fund in connection
with its securities transactions, (f) all taxes and corporate fees payable by
the Fund to governmental agencies, (g) the fees of any trade association of
which the Fund may be a member, (h) the cost of any share certificates
representing shares of the Fund, (i) the cost of fidelity and liability
insurance, (j) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the SEC and registering the Fund
as a broker or dealer and qualifying its shares under state securities 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
16
<PAGE>
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, Inc., Prudential-Bache Special Money Market
Fund, Inc. (d/b/a Prudential Special Money Market Fund), Prudential-Bache
Structured Maturity Fund, Inc. (d/b/a Prudential Structured Maturity Fund),
Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money
Fund), 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.
17
<PAGE>
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>
Maureen Behning-Doyle . Executive Vice Executive Vice President, PMF;
President Senior Vice President,
Prudential Securities
John D. Brookmeyer, Jr. Director Senior Vice President,
Two Gateway Center Prudential
Newark, NJ 07102
Susan C. Cote ............... Senior Vice 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.
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
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ----------------------------- -------------------- ------------------------------
<S> <C> <C>
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
Newark, NJ 07102
Lawrence C. McQuade ......... Vice Chairman Vice Chairman, PMF
Leland B. Paton ............. Director Executive Vice President and
Director, Prudential
Securities; Director, PSG
Richard A. Redeker .......... President, 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
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>
19
<PAGE>
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 March 30, 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 April 15, 1993.
TERMS OF THE SUBADVISORY AGREEMENT
Pursuant to the Subadvisory Agreement, PIC, subject to the supervision of
PMF and the Board of Directors and in conformity with the stated policies of the
Fund, manages the investment operations of the Fund and the composition of the
Fund's portfolio, including the purchase, retention and disposition of
securities and other investments. PIC is reimbursed by PMF for reasonable costs
and expenses incurred by it in furnishing such services. The fees paid by the
Fund to PMF under the Management Agreement with PMF are not affected by this
arrangement. PIC keeps certain books and records required to be maintained
pursuant to the Investment Company Act. The investment advisory services of PIC
to the Fund are not exclusive under the terms of the Subadvisory Agreement and
PIC is free to, and does, render investment advisory services to others.
PIC has authorized any of its directors, officers and employees who may be
elected as Directors or officers of the Fund to serve in the capacities in which
they have been elected. Services furnished by PIC under the Subadvisory
Agreement may be furnished by any such directors, officers or employees of PIC.
The Subadvisory Agreement provides that PIC shall not be liable for any error of
judgment or for any loss suffered by the Fund or PMF in connection with the
matters to which the Subadvisory Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on PIC's part in the
performance of its duties or from its reckless disregard of duty. The
Subadvisory Agreement provides that it shall terminate automatically if assigned
or upon termination of the Management Agreement and that it may be terminated
without penalty by either party upon not more than 60 days' nor less than 30
days' written notice.
20
<PAGE>
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 OCCUPATIONS
- ----------------------------- ----------------------- ---------------------------
<S> <C> <C>
Martin A. Berkowitz ......... Senior Vice President, Senior Vice President,
Chief Financial and Chief Financial and
Compliance Officer Compliance Officer, PIC;
Vice President,
Prudential
William M. Bethke ........... Senior Vice President Senior Vice President,
Two Gateway Center Prudential
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
Eugene B. Heimberg .......... President and Director Senior Vice President,
Prudential
Garnett L. Keith, Jr. ....... Director Vice Chairman and Director,
Prudential
William P. Link ............. Executive Vice Executive Vice President,
Four Gateway Center President Prudential
Newark, NJ 07102
Robert E. Riley ............. Executive Vice Executive Vice President,
800 Boylston Avenue President Prudential; Director, PSG
Boston, MA 02199
James W. Stevens ............ Executive Vice Executive Vice President,
Four Gateway Center President Prudential; Director, PSG
Newark, NJ 07102
Robert C. Winters ........... Director Chairman of the Board and
Chief Executive Officer,
Prudential; Chairman of
the Board, PSG
Claude J. Zinngrabe, Jr. . Executive Vice Vice President, Prudential
President
</TABLE>
21
<PAGE>
THE DISTRIBUTORS
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities, One Seaport Plaza, New York, New York 10292, acts as the
distributor of the Class B shares of the Fund.
Under separate Distribution and Service Plans (the Class A Plan and the
Class B Plan, collectively, the Plans) adopted by the Fund under Rule 12b-1
under the Investment Company Act and separate distribution agreements (the
Distribution Agreements), PMFD and Prudential Securities (collectively, the
Distributor) incur the expenses of distributing the Fund's Class A and Class B
shares, respectively.
The Plans were last approved by the Board of Directors, including a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Class A or Class B
Plan or in any agreement related to either Plan (the Rule 12b-1 Directors), on
April 15, 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 .25 of 1% of the
average daily net assets of the Class A shares for the fiscal year ending
February 28, 1995.
For the fiscal year ended February 28, 1993 and the six-month period ended
August 31, 1993, PMFD received payments of $70,218 and $43,622, respectively,
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
22
<PAGE>
salespersons who sell Class A shares. For the fiscal year ended February 28,
1993, and six-month period ended August 31, 1993, PMFD also received $724,000
and $239,200, in initial sales charges.
CLASS B PLAN. Under the Class B Plan, the Fund reimburses Prudential
Securities for its distribution-related expenses with respect to Class B shares
at an annual rate of up to .75 of 1% of the average daily net assets of the
Class B shares. The Class B Plan also provides for the payment of a service fee
to Prudential Securities at a rate not to exceed .25 of 1% of the average daily
net assets of Class B shares. The aggregate distribution fee for Class B shares
(asset-based sales charge plus service fee) will not exceed 1% of average daily
net assets of the Class B shares up to $3 billion of such assets, .80 of 1% of
the next $1 billion of such assets and .50 of 1% of such assets in excess of $4
billion.
For the fiscal year ended February 28, 1993 and the six-month period ended
August 31, 1993, Prudential Securities received $26,709,236 and $11,976,282,
respectively, from the Fund under the Class B Plan and spent approximately
$28,613,000 and $15,099,300, respectively, in distributing the Fund's Class B
shares. It is estimated that of the latter amount approximately 16.0%
($4,581,600) and 23.3% ($3,523,300) was spent on compensation to Prusec for
commissions to its financial advisers and other expenses, including an
allocation of overhead and other branch office distribution-related expenses,
incurred by it for distribution of Fund shares during the fiscal year ended
February 28, 1993 and during the six-month period ended August 31, 1993,
respectively; 20.4% ($5,827,500) and 17.4% ($2,623,800) in interest and/or
carrying charges during the fiscal year ended February 28, 1993 and during the
six-month period ended August 31, 1993, respectively; and 63.6% ($18,203,900)
and 59.3% ($8,952,200) on the aggregate of (i) payments of commissions to
financial advisers, 49.1% ($14,054,900) and 45.2% ($6,828,700) during the fiscal
year ended February 28, 1993 and during the six-month period ended August 31,
1993, respectively and (ii) an allocation of overhead and other branch office
distribution-related expenses 14.5% ($4,149,900) and 14.1% ($2,123,500) during
the fiscal year ended February 28, 1993 and during the six-month period ended
August 31, 1993, respectively. 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.
23
<PAGE>
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 February 28,
1993 and the six months ended August 31, 1993, Prudential Securities received
approximately $3,163,300 and $1,310,800, respectively, in contingent deferred
sales charges. As of February 28, 1993 and August 31, 1993, the aggregate
amounts of unreimbursed distribution expenses for the Fund's Class B shares were
approximately $151,623,200 and $151,417,800, respectively.
The Class A and Class B Plans continue in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Directors, including a majority vote of the Rule 12b-1 Directors, cast in
person at a meeting called for the purpose of voting on such continuance. The
Class A and Class B Plans may each be terminated at any time, without penalty,
by the vote of a majority of the Rule 12b-1 Directors or by the vote of the
holders of a majority of the outstanding shares of the applicable class on not
more than 30 days' written notice to any other party to the Plans. Neither Plan
may be amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class,
and all material amendments are required to be approved by the Board of
Directors in the manner described above. Each Plan will automatically terminate
in the event of its assignment. The Fund will not be contractually obligated to
pay expenses incurred under either the Class A Plan or the Class B Plan if it is
terminated or not continued. In the event of termination or noncontinuation of
the Class B Plan, the Board of Directors may consider the appropriateness of
having the Fund reimburse Prudential Securities for the outstanding carry
forward amounts plus interest thereon.
Pursuant to each Plan, the Board of Directors reviews at least quarterly a
written report of the distribution expenses incurred on behalf of the Class A
and Class B shares of the Fund by PMFD and Prudential Securities, respectively.
The report includes an itemization of the distribution expenses and the purposes
of such expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Rule 12b-1 Directors shall be committed to the Rule
12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act. Each Distribution Agreement was
last approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on April 15, 1993.
24
<PAGE>
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures 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." Broker-dealers may
receive brokerage commissions on Fund portfolio transactions, including options,
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options. 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 the U.S. Government securities market, securities are generally traded on
a "net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Fund will not deal with
Prudential Securities (or any affiliate) in any transaction in which Prudential
Securities (or any affiliate) acts as principal. Thus, it will not deal in U.S.
Government securities with Prudential Securities (or any affiliate) acting as
market maker, and it will not execute a negotiated trade with Prudential
Securities (or any affiliate) if execution involves Prudential Securities (or
any affiliate) acting as principal with respect to any part of the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the 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, dealers
or futures commission merchants furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate
25
<PAGE>
assets are far larger than the Fund's, and the services furnished by such
brokers, dealers or futures commission merchants 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 merchant
based on the quality and quantity of execution services provided by the broker
or futures commission merchant 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 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 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 by the Fund's
Board of Directors. Portfolio securities may not be purchased from any
underwriting or selling syndicate of which Prudential Securities or its
affiliates, during the existence of the syndicate, is a principal underwriter
(as defined in the Investment Company Act), except in accordance with rules of
the SEC. This limitation, in the opinion of the Fund, will not significantly
affect the Fund's ability to pursue its present investment objective. However,
in the future in other circumstances, the Fund may be at a disadvantage because
of this limitation in comparison to other funds with similar objectives but not
subject to such limitations.
Subject to the above considerations, Prudential Securities may act 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 merchant in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. This
standard would allow Prudential Securities or any affiliate to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker 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 persons, has adopted procedures
which are reasonably designed to provide that any commissions, fees or
26
<PAGE>
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 for the
fiscal year ended February 28, 1993 and the six-month period ended August 31,
1993.
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 authorized
pursuant to an exemptive order of the Securities and Exchange Commission (the
SEC Order) and would provide for the automatic conversion of Class B shares to
Class A shares at relative net asset value approximately seven years after
purchase. Class A shares are subject to a lower annual distribution and service
fee than Class B shares and conversions would occur without the imposition of
any additional sales charge. A description of the conversion feature is set
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. PMFD has agreed
to limit
27
<PAGE>
the fee it receives under the Class A Plan to .25 of 1% for the fiscal year
ended February 28, 1995. Class B shares are currently offered without an initial
sales charge but are subject to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lesser of the amount invested or the
redemption proceeds) on certain redemptions generally made within six years of
purchase and to an annual distribution and service fee pursuant to a Rule 12b-1
plan of up to 1% of the average daily net assets of the Class B shares up to $3
billion, .80 of 1% of the next $1 billion of such assets and .50 of 1% of such
assets in excess of $4 billion.
In accordance with the SEC Order, the Board of Directors may, among other
things, authorize the creation of additional classes of shares from time to
time. The Board of Directors has approved the offering of a new class of shares,
to be designated Class C shares, which will be offered simultaneously with the
offering of Class B shares with the proposed conversion feature. Class C shares
will be offered without either an initial or a deferred sales charge but will be
subject to an annual distribution and service fee not to exceed 1% of the
average daily net assets of the Class C shares. If the proposed conversion
feature for Class B shares is not approved, Class C shares will not be offered.
THE PROPOSED CONVERSION FEATURE
On May 5, 1993, the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act), approved an amendment to the Fund's Articles of
Incorporation to permit the implementation of a conversion feature for the
Fund's Class B shares. A copy of the proposed amendment to the Fund's Articles
of Incorporation is attached hereto as Exhibit B.
If this proposal is approved, it is currently contemplated that conversions
of Class B shares to Class A shares will occur on a quarterly basis
approximately seven years from the purchase of Class B shares. The first
conversion is currently anticipated to occur in or about January 1995.
Conversions will be effected automatically at relative net asset value without
the imposition of any additional sales charge. Class B shareholders will benefit
from the conversion feature because they will thereafter be subject to the lower
annual distribution and service fee applicable to Class A shares.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, it is currently anticipated that the number
of Class B shares eligible to convert to Class A shares (excluding shares
acquired through the automatic reinvestment of dividends and other
distributions) (the Eligible Shares) will be determined on each conversion date
in accordance with the following formula: (i) the ratio of (a) the amounts paid
for
28
<PAGE>
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 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
If the net asset value per share of Class A is higher than that of Class B
at the time of conversion (which may be the case because of the higher
distribution and service fee applicable to Class B shares), shareholders will
receive fewer Class A shares than Class B shares converted although the
aggregate dollar value will be the same.
For purposes of calculating the applicable holding period for conversions,
all payments for purchases of Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange, or a series of exchanges, on the last day of the month in
which the original payment for purchases of such Class B shares was made. For
Class B shares previously exchanged for shares of a money market fund, the time
period during which such shares were held in the money market fund will be
excluded. For example, Class B shares held in a money market fund for a period
of one year will not convert to Class A until approximately eight years from
purchase. For purposes of measuring the time period during which shares are held
in a money market fund, exchanges will be deemed to have been made on the last
day of the month. Class B shares acquired through exchange will convert to Class
A shares after expiration of the conversion period applicable to the original
purchase of such shares. As of the date of the first conversion (which, as noted
above, is currently anticipated to occur in or about January
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1995) all amounts representing Class B shares then outstanding beyond the
expiration of the applicable conversion period will automatically convert to
Class A shares, together with all shares or amounts representing Class B shares
acquired through the automatic reinvestment of dividends and distributions then
held in the shareholder's account.
Under current law, no gain or loss will be recognized by a shareholder for
U.S. income tax purposes as a result of a conversion of Class B shares into
Class A shares.
If approved by shareholders, the conversion feature will be subject to the
continuing availability of opinions of counsel (i) that the dividends and other
distributions paid on Class A and Class B shares will not constitute
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and (ii) that the conversion of shares does not constitute a taxable event.
REQUIRED VOTE
The proposed amendment to the Fund's Articles of Incorporation to implement
the conversion feature requires the affirmative vote of a majority of the Fund's
outstanding shares. In the event shareholders of the Fund do not approve the
proposed amendment, the conversion feature will not be implemented for the Fund
and Class B shares of the Fund will continue to be subject, possibly
indefinitely, to their higher annual distribution and service fee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
APPROVAL OF
AMENDED AND RESTATED CLASS A DISTRIBUTION
AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS A AND CLASS B SHAREHOLDERS VOTING SEPARATELY)
(PROPOSAL NO. 3)
On June 3, 1993, the Fund's Board of Directors approved an amended and
restated Class A Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act and an amended and restated Distribution Agreement with
PMFD for Class A shares of the Fund (the Proposed Class A Plan and the Proposed
Class A Distribution Agreement, respectively) and recommends submission of the
Proposed Class A Plan to the Fund's Class A shareholders for approval or
disapproval at this Special Meeting of Shareholders. As contemplated by the SEC
Order (previously defined under Proposal No. 2), the Proposed Class A Plan is
also being submitted for approval by Class B shareholders because, subject to
approval of Proposal No. 2, Class B shares will
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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 April 15, 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 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% 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
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<PAGE>
combination of service fees and asset-based sales charges under both the
Existing Class A Plan and the Proposed Class A Plan; provided that the total
fees do not exceed .30 of 1% per annum of the average daily net assets of the
Class A shares.
The Existing Class A Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval by a
majority of the holders of the Class A shares of the Fund. In addition, all
material amendments thereof must be approved by vote of a majority of the
Directors, including a majority of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on the Plan. So long as the Existing
Class A Plan is in effect, the selection and nomination of Directors who are not
interested persons of the Fund will be committed to the discretion of the Rule
12b-1 Directors.
The Existing Class A Plan may be terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Directors or by the vote
of a majority of the outstanding Class A shares of the Fund (as defined in the
Investment Company Act) on written notice to any other party to such plan and
will automatically terminate in the event of its assignment (as defined in the
Investment Company Act). For a more detailed description of the Existing Class A
Plan, see "Management of the Fund -- The Distributors -- Class A Plan."
THE PROPOSED CLASS A PLAN
The Proposed Class A Plan amends the Existing Class A Plan in one material
respect. Under the Existing Class A Plan, the Fund reimburses PMFD for expenses
actually incurred for Distribution Activities up to a maximum of .30 of 1% per
annum of the 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
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reimbursed by the Fund. For each of the fiscal years ended February 28, 1991,
1992 and 1993, PMFD received payments of $35,436, $44,314 and $70,218,
respectively, under the Existing Class A Plan representing .15% of the average
daily net assets of the Class A shares as reimbursement of expenses incurred for
Distribution Activities. Although PMFD agreed to limit its fees under the
Existing Class A Plan to .25 of 1% for the fiscal years ended, February 28,
1991, 1992 and 1993, it in fact further limited its fee to .15 of 1% even though
its direct and indirect reimbursable distribution expenses exceeded such amount.
PMFD believes that it would have similarly limited its fee had the Proposed
Class A Plan been in effect during the past three fiscal years, although it
could have assesed the maximum annual fee of .30 of 1%. Regardless of which plan
will be in effect, the Distributor has voluntarily agreed to limit its fees for
Distribution Activities to no more than .25 of 1% of the average daily net
assets of the Class A shares for the fiscal year ending February 28, 1995. Other
expenses incurred by PMFD for Distribution Activities have been and will
continue to be paid from the proceeds of the initial sales charges.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class A Plan, over a reimbursement type plan, such as the Existing
Class A Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order to
qualify for reimbursement. Although the Proposed Class A Plan will continue to
require quarterly reporting to the Board of Directors of the amounts accrued and
paid under the Plan and of the expenses actually borne by the Distributor, there
will be no need to match specific expenses to reimbursements as under the
Existing Class A Plan. Thus, the accounting for the Proposed Class A Plan would
be simplified and the timing of when expenditures are to be made by the
Distributor would not be an issue. These considerations, combined with the
reasonable likelihood, although there is no assurance, that the per annum
payment rate under the Proposed Class A Plan, will not exceed the expenses
incurred by PMFD for Distribution Activities, suggest that the costs and efforts
associated with a reimbursement plan are unwarranted.
In considering whether to approve the Proposed Class A Plan, the Directors
reviewed, among other things, the nature and scope of the services to be
provided by PMFD, the purchase options available to investors under the
Alternative Purchase Plan, the amount of expenditures under the Existing Class A
Plan, the relationship of such expenditures to the overall cost structure of the
Fund and comparative data with respect to distribution arrangements adopted by
other investment companies. Based on such review, the Directors,
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<PAGE>
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
shares is defined as the lesser of (i) 67% of a class' outstanding shares
represented at a meeting at which more than 50% of the outstanding shares of the
class are present in person or represented by proxy, or (ii) more than 50% of a
class' outstanding shares. If the Proposed Class A Plan is not approved as
described above, the Existing Class A Plan will continue in its present form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3.
APPROVAL OF
AMENDED AND RESTATED CLASS B DISTRIBUTION
AND SERVICE PLAN
(FOR CONSIDERATION BY CLASS B SHAREHOLDERS ONLY)
(PROPOSAL NO. 4)
On June 3, 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.
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<PAGE>
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 April 13, 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 continue to benefit
the Fund's Class B shareholders. A copy of the Proposed Class B Plan is attached
hereto as Exhibit D.
THE EXISTING CLASS B PLAN
Under the Existing Class B Plan, the Fund reimburses Prudential Securities
for expenses incurred for Distribution Activities at an annual rate of up to 1%
of the average daily net assets of the Class B shares up to $3 billion, .80 of
1% of the next $1 billion of such net assets and .50 of 1% of such net assets in
excess of $4 billion (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% 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 of Fair Practice (the NASD Rules). The
NASD Rules place an annual limit of .25 of 1% on fees that may be imposed for
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<PAGE>
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 B Plan and the Proposed Class B Plan; provided that the total
fees do not exceed 1% per annum of the average daily net assets of the Class B
shares up to $3 billion, .80 of 1% of the next $1 billion of such net assets and
.50 of 1% of such net assets in excess of $4 billion. 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 Directors who are not
interested persons of the Fund 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 1% per annum of the average daily net assets of the Class B shares up
to $3 billion, .80 of 1% of the next $1 billion of such net assets and .50 of 1%
of such net assets in excess of $4 billion. The Proposed Class B Plan authorizes
the Fund to pay Prudential Securities the same maximum annual fee as
compensation for its Distribution Activities regardless of the expenses incurred
by Prudential Securities for Distribution Activities. In contrast to the
Existing Class B Plan, the amounts payable by the Fund under the Proposed
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<PAGE>
Class B Plan would not be directly related to the expenses actually incurred by
Prudential Securities for its Distribution Activities. Consequently, if
Prudential Securities' expenses are less than its distribution and service fees,
it will retain its full fees and realize a profit. However, if Prudential
Securities' expenses exceed the distribution and service fees received under the
Proposed Class B Plan, it will no longer carry forward such amounts for
reimbursement in future years.
Since inception of the Existing Class B Plan, the cumulative reimbursable
expenses incurred thereunder by Prudential Securities have exceeded the amounts
reimbursed by the Fund. As of December 31, 1993, the aggregate amount of
distribution expenses incurred and not yet reimbursed by the Fund or recovered
through contingent deferred sales charges was approximately $148,543,800.
For the fiscal years ended February 28, 1991, 1992, and 1993, Prudential
Securities received $33,463,588, $29,037,034, and $26,709,236, respectively,
from the Fund under the Existing Class B Plan, representing .97%, 1.00%, and
1.00%, respectively, of the average daily net assets of the Class B shares, and
spent approximately $41,033,200, $33,296,500, and $28,613,000, respectively, for
Distribution Activities. Since the maximum annual fee under the Existing Class B
Plan is the same as under the Proposed Class B Plan, Prudential Securities would
have received the same annual fee under the Proposed Class B Plan as it did
under the Existing Class B Plan for the fiscal years ended February 28, 1991,
1992 and 1993.
Among the major perceived benefits of a compensation type plan, such as the
Proposed Class B Plan, over a reimbursement type plan, such as the Existing
Class B Plan, is the facilitation of administration and accounting. Under
reimbursement plans, all expenses must be specifically accounted for by the
Distributor and attributed to the specific class of shares of a fund in order to
qualify for reimbursement. Although the Proposed Class B Plan will continue to
require quarterly reporting to the Board of Directors of the amounts accrued and
paid under the Plan and of the expenses actually borne by the Distributor, there
will be no need to match specific expenses to reimbursements and no carrying
forward of such amounts, as under the Existing Class B Plan. Thus, the
accounting for the Proposed Class B Plan would be simplified and the timing of
when expenditures are to be made by the Distributor ordinarily would not be an
issue. Currently, because the Existing Class B Plan is a reimbursement plan, the
Distributor retains an 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
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<PAGE>
Distributor. These considerations, combined with the fact that the cumulative
expenses incurred by Prudential Securities for Distribution Activities have
exceeded the amounts reimbursed by the Fund under the Existing Class B Plan,
suggest that the costs and efforts associated with a reimbursement plan are
unwarranted.
In considering whether to approve the Proposed Class B Plan, the Directors
reviewed, among other things, the nature and scope of the services to be
provided by Prudential Securities, the purchase options available to investors
under the Alternative Purchase Plan, the amount of expenditures under the
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 in 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 A MODIFICATION IN THE FUND'S INVESTMENT
RESTRICTIONS TO CLARIFY THAT COLLATERAL
ARRANGEMENTS WITH RESPECT TO INTEREST RATE
SWAP TRANSACTIONS, REVERSE REPURCHASE AGREEMENTS
AND DOLLAR ROLL TRANSACTIONS ARE NOT
DEEMED TO BE THE ISSUANCE OF A SENIOR
SECURITY OR THE PLEDGE OF ASSETS
(PROPOSAL NO. 5)
On May 5, 1993, the Board of Directors approved an amendment to the Fund's
investment restrictions, which, if approved by shareholders, would clarify that
collateral arrangements with respect to interest rate swap transactions,
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<PAGE>
reverse repurchase agreements and dollar roll transactions are not considered to
be the issuance of a senior security or the pledge of assets. The Board of
Directors recommends that shareholders of the Fund approve the Amendments which
would change Investment Restriction No. 3.
The Fund currently may enter into interest rate swap transactions and dollar
rolls. With respect to interest rate swaps, the Fund enters into such
transactions primarily to preserve a return or spread on a particular investment
or to protect against an increase in price of a security the Fund anticipates
purchasing at a later date. The Fund may enter into interest rate swaps as a
hedge and not as a speculative investment. The Fund enters into swaps on a net
basis whereby the two payment streams are netted out, with the Fund paying or
receiving only the net amount of the two payments. The net amount of the Fund's
obligations over its entitlements with respect to each swap transaction is
accrued on a daily basis and an amount of cash, U.S. Government securities or
liquid high grade debt securities having an aggregate value at least equal to
any accrued excess is maintained in a segregated account by the Fund's custodian
in a manner that satisfies the requirements of the Investment Company Act.
The Fund may also enter into dollar rolls in which the Fund sells securities
for delivery in the current month and simultaneously contracts to repurchase
similar securities at a specified date in the future from the same party. The
Fund establishes a segregated account with its custodian, in a manner that
satisfies the requirements of the Investment Company Act, in which it maintains
cash, U.S. Government securities or other liquid high grade debt obligations
equal to the value of its obligations with respect to the dollar roll.
Insomuch as segregated accounts are established for these hedging
transactions, the Fund believes that such obligations do not constitute senior
securities.
In today's market, swaps and dollar rolls often contain collateral
arrangements whereby each counterparty will agree to pledge assets to the other
to secure the amount of that party's obligations. The Fund's Board of Directors
believes that the ability to establish collateral arrangements with respect to
swap transactions and dollar rolls will expand the Fund's ability to enter into
such transactions and therefore recommends that the Fund's investment
restrictions be clarified to ensure that the Fund may establish such collateral
arrangements. In addition, while the Fund currently does not have the ability to
enter into reverse repurchase agreements, it may seek Board approval to engage
in such transactions in the future and may wish to establish collateral
arrangements with respect to these transactions as well.
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<PAGE>
PROPOSED AMENDMENT TO THE FUND'S INVESTMENT RESTRICTIONS
To clarify that collateral arrangements with respect to interest rate swap
transactions, reverse repurchase agreements and dollar roll transactions are not
considered to be the issuance of a senior security or the pledge of assets,
Investment Restriction No. 3 is proposed to be amended as described below (added
language is underlined).
The Fund may not:
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20%
of the value of its total assets to secure such borrowings. For purposes of
this restriction, the purchase and sale of securities on a when-issued or
delayed delivery basis, collateral arrangements with respect to interest
rate swap transactions, reverse repurchase agreements or dollar roll
transactions or the writing of options on debt securities or on interest
rate futures contracts or other financial futures contracts are not deemed
to be a pledge of assets and neither such arrangements, nor the purchase or
sale of interest rate futures contracts or other financial futures contracts
or the purchase or sale of related options, nor obligations of the Fund to
Directors pursuant to deferred compensation arrangements are deemed to be
the issuance of a senior security.
The Board of Directors believes that adoption of Proposal No. 5 is in the
best interest of the Fund and its shareholders.
REQUIRED VOTE
Amendment of the Fund's investment restriction as described above requires
the approval of a majority of the Fund's 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 shares
represented at a meeting at which more than 50% of the Fund's outstanding shares
are present in person or represented by proxy, or (ii) more than 50% of the
Fund's outstanding shares. If the proposed change in investment policy is not
approved, the current investment restriction 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.
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APPROVAL OF ELIMINATION OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS REGARDING RESTRICTED
AND ILLIQUID SECURITIES
(PROPOSAL NO. 6)
On May 5, 1993, at the request of the Fund's Manager and Subadviser, the
Board of Directors considered and recommends for shareholder approval revision
of the Fund's fundamental investment restrictions regarding illiquid and
restricted securities. The current restriction is overly confining in light of
the development of an active market in those securities that, although subject
to restrictions on resale, are transferable under SEC Rule 144A. The Board of
Directors recommends elimination of the Fund's Investment Restriction No. 11
which limits the purchase of any security that is restricted as to disposition
under federal securities laws. Further, the Board recommends modification of
Investment Restriction Nos. 6 and 14 to eliminate restrictions on investments in
equity securities for which market quotations are not readily available and
repurchase agreements with maturities of longer than 7 days and other illiquid
assets.
The Board recommends replacement of such fundamental investment restrictions
with a non-fundamental investment policy that could be modified by the vote of
the Board of Directors in response to regulatory or market developments without
further approval by shareholders. The change would expand the Fund's ability to
invest in securities which have restrictions on resale but have a readily
available institutional market, such as securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 (the Securities Act). The proposed
non-fundamental policy would provide as follows:
The Fund may invest up to 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 of 1933, as amended (the Securities Act), that have a readily
available market are not considered illiquid for purposes of this
limitation. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a maturity equal
to the applicable notice period.
An open-end investment company may not hold a significant amount of
restricted securities or illiquid securities because such securities may present
problems of accurate valuation and because it is possible that the investment
company would have difficulty satisfying redemptions within seven days. The
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proposed investment policy is not expected by the investment adviser or the
Board of Directors to affect the Fund's liquidity because it excludes from
illiquid securities only those Rule 144A securities for which there is a readily
available market.
Historically, illiquid securities have been defined to include securities
subject to contractual or legal restrictions on resale, securities for which
there is no readily available market and repurchase agreements having a maturity
of longer than seven days. In recent years, however, the securities markets have
evolved significantly, with the result that new types of instruments have
developed which make the Fund's present restriction on illiquid investments
overly broad and unnecessarily restrictive in the view of the Fund's Manager. In
particular, the SEC adopted Rule 144A in April 1990, which allows for a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. SEC interpretations give directors of registered
investment companies the discretion to designate restricted securities as liquid
if the presence of a readily available market can be demonstrated and if a
current market value can be ascertained. In adopting Rule 144A, the SEC
recognized the increased size and liquidity of the institutional markets for
unregistered securities and the importance of institutional investors in the
capital formation process. In 1992, the SEC staff issued amended guidelines to
the effect that up to 15% (as opposed to 10%) of an open-end fund's net assets
may be invested in illiquid securities, including repurchase agreements with a
maturity of longer than seven days. The guidelines were amended in connection
with the SEC's efforts to remove unnecessary barriers to capital formation and
to facilitate access to the capital markets by small businesses.
The staff of the SEC has also taken the position that purchased over-the-
counter options and the assets used as "cover" for written over-the-counter
options are illiquid securities unless the Fund and the counterparty have
provided for the Fund at its option to unwind the over-the-counter option. The
exercise of such an option ordinarily would involve the payment by the Fund of
an amount designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid."
The proposed change would expand the Fund's ability to invest in securities
which are eligible for resale pursuant to Rule 144A. Rule 144A securities
generally have a readily available institutional market, and the proposed change
would permit the Fund to invest up to 15% of its net assets in illiquid assets.
The markets for certain equity securities, corporate bonds and notes are almost
exclusively institutional. These institutional investors depend on an efficient
42
<PAGE>
institutional market in which the unregistered security can be readily resold.
In the opinion of the Fund's Manager, the fact that there are restrictions on
resale to the general public is therefore not necessarily indicative of the
liquidity of such investments. If designated as liquid (under the supervision of
the Board of Directors), these Rule 144A securities would be exempt from the 15%
limitation.
In order to take advantage of the market for Rule 144A securities, and the
increasingly liquid institutional trading markets, the Manager recommends that
the Fund eliminate its fundamental policies regarding illiquid and restricted
securities so that Rule 144A securities that are nonetheless liquid may be
purchased without regard to the current 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 the trades and quotes for the security;
2. the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers;
3. dealer undertakings to make a market in the security; and
4. the nature of the security and the nature of the marketplace trades
(E.G., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
The Board of Directors believes that adoption of Proposal No. 6 is in the
best interests of the Fund and its shareholders.
Investment Restriction No. 11 currently reads as follows:
The Fund may not:
11. Purchase any security restricted as to disposition under federal
securities laws. (Since any foreign security acquired by the Fund will be
disposed of only in a foreign market, foreign securities are not regarded as
restricted.)
43
<PAGE>
Investment Restrictions Nos. 6 and 14 are proposed to be modified to read as
follows [deleted language in brackets]:
The Fund may not:
6. Purchase any security if as a result the Fund would then have more
than 5% of its total assets (determined at the time of investment) invested
in securities of companies (including predecessors) less than three years
old [or in equity securities for which market quotations are not readily
available] except that the Fund may invest in the securities of any U.S.
Government agency or instrumentality, and in any security guaranteed by such
an agency or instrumentality.
14. Make loans, except through (i) repurchase agreements [(repurchase
agreements with a maturity of longer than 7 days together with illiquid
assets being limited to 10% of the Fund's total assets)] and (ii) loans of
portfolio securities (limited to 30% of the Fund's total assets).
REQUIRED VOTE
Adoption of Proposal No. 6 requires the affirmative vote of the holders of a
majority of the outstanding voting securities of the Fund as defined in the
Investment Company Act and described under Proposal No. 5 above. If the proposed
change in investment policy is not approved, the current limitations would
remain a fundamental policy which could not be changed without the approval of a
majority of the outstanding voting securities of the Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 6.
APPROVAL OF A MODIFICATION OF THE FUND'S INVESTMENT RESTRICTION LIMITING THE
FUND'S ABILITY TO INVEST IN A SECURITY IF THE FUND WOULD HOLD MORE THAN TEN
PERCENT OF ANY CLASS OF SECURITIES OF AN ISSUER
(PROPOSAL NO. 7)
On May 5, 1993, at the request of the Fund's Manager and Subadviser, the
Board of Directors considered and recommends for shareholder approval
modification of Investment Restriction No. 5 to delete the restriction that
prohibits the Fund from the purchase of a security if the Fund would hold more
than ten percent of any class of securities of an issuer.
The Fund currently may not purchase a security if the Fund would then hold
more than 10% of any class of securities of an issuer. Under this restriction,
all common stock issues of an issuer, all preferred stock issues, and all debt
44
<PAGE>
issues are each taken as a separate single class. The Fund's Subadviser believes
the restriction is confining and has requested its deletion. This restriction,
in its current form, is not required under federal securities laws. If the
proposal is approved, and a state securities commission requires inclusion of
this limitation, the Fund would continue to comply with the restriction as a
non-fundamental operating policy so long as the Fund sells its shares in that
state.
Investment Restriction No. 5 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 common stock issues
of an issuer as a single class, all preferred stock issues as a single class
and all debt issues as a single class) or more than 10% of the outstanding
voting securities of an issuer.
The Board of Directors is proposing that Investment Restriction No. 5 be
modified to read as follows:
The Fund may not:
Purchase any security if as a result the Fund would then hold more than
10% of the outstanding voting securities of an issuer.
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. 7 is in the
best interests of the Fund and its shareholders.
REQUIRED VOTE
Adoption of Proposal No. 7 requires the approval of a majority of the
outstanding voting securities of the Fund, as defined by the Investment Company
Act and described under Proposal No. 5 above. If the proposed change in
investment policy is not approved, the current limitations would remain a
fundamental policy which could not be changed without the approval of a majority
of the outstanding voting securities of the Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 7.
45
<PAGE>
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. 8)
On May 5, 1993, at the request of the Fund's Manager, the Board of Directors
considered and recommends for shareholder approval elimination of the Fund's
Investment Restriction No. 7, which provides that the Fund may not:
Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or director of the Fund or of the Manager owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer.
The Manager has advised the Board of Directors that the restriction upon the
Fund's investing in companies in which officers and directors of the Fund or the
Manager own more than 1/2 of 1% of the outstanding securities of such company
was initially adopted to comply with a restriction imposed in connection with
the sale of the Fund's shares in Ohio. If the proposal is approved, the Fund
would continue to comply with the restriction as a non-fundamental operating
policy so long as the Fund sells its shares in Ohio. However, if Ohio were to
eliminate the requirement or the Fund stopped offering its shares for sale in
Ohio, the Board of Directors could eliminate the operating policy without the
necessity of shareholder approval. The Fund does not currently intend to stop
offering its shares in Ohio, nor are the Fund or the Fund's Manager aware of any
proposal to change the Ohio law.
The Board of Directors believes that adoption of Proposal No. 8 is in the
best interests of the Fund and its shareholders.
REQUIRED VOTE
Amendment of the Fund's investment restrictions to delete Investment
Restriction No. 7 requires the approval of a majority of the Fund's outstanding
voting securities, as defined by the Investment Company Act and described under
Proposal No. 5 above. If the proposed change in investment policy is not
approved, the current limitations would remain a fundamental policy which could
not be changed without the approval of a majority of the outstanding voting
securities of the Fund.
46
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 8.
APPROVAL OF AN AMENDMENT OF ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE FUND
(PROPOSAL NO. 9)
The Board of Directors proposes that the Fund's name be changed from
Prudential-Bache Government Plus Fund, Inc. to Prudential Government Income
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 Government Plus 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 Government
Income 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 further believes that proposed name change from the
Prudential "Government Plus" Fund to the Prudential "Government Income" Fund is
consistent with the Fund's investment objective of high current return.
The Board of Directors believes that adoption of Proposal No. 9 is in the
best interest of the Fund and its shareholders.
REQUIRED VOTE
The name change must be approved by the holders of a majority of the Fund's
shares of common stock in accordance with the Fund's Articles of Incorporation.
The name change will be effected as soon as is practicable after shareholder
approval. If this proposal is not approved, the Board of Directors will consider
whether it is appropriate for the Fund to continue to do business under the name
Prudential Government Plus Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 9.
47
<PAGE>
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 10)
The Board of Directors of the Fund, including Directors who are not
interested persons of the Fund, has selected Deloitte & Touche as independent
accountants for the Fund for the fiscal year ending February 28, 1995. The
ratification of the selection of independent public accountants is to be voted
upon at the Meeting and it is intended that the persons named in the
accompanying Proxy will vote for Deloitte & Touche. No representative of
Deloitte & Touche 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 public 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. 10.
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of shareholders arise,
including any question as to an adjournment of the Meeting, the persons named in
the enclosed proxy will vote thereon according to their best judgment in the
interests of the Fund.
SHAREHOLDER PROPOSALS
The Fund is not required to hold annual meetings of shareholders and the
Board of Directors currently does not intend to hold such meetings unless
shareholder action is required in accordance with the Investment Company Act or
the Fund's By-laws. A shareholder proposal intended to be presented at any
48
<PAGE>
meeting of shareholders of the Fund hereinafter called must be received by the
Fund a reasonable time before the Board of Directors' solicitation relating
thereto is made in order to be included in the Fund's proxy statement and form
of proxy relating to that meeting. The mere submission of a proposal by a
shareholder does not guarantee that such proposal will be included in the proxy
statement because certain rules under the Federal securities laws must be
complied with before inclusion of the proposal is required.
S. Jane Rose
SECRETARY
Dated: March , 1994
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
49
<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
AMENDMENT TO ARTICLES OF INCORPORATION
Article V, Section 1 of the Fund's Articles of Incorporation are proposed to
be amended and restated as follows:
ARTICLE V
COMMON STOCK
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is 2,000,000,000 shares of the par
value of $.01 per share and of the aggregate par value of $20,000,000 to be
divided initially into three classes, consisting of 666,666,666 2/3 shares of
Class A Common Stock, 666,666,666 2/3 shares of Class B Common Stock and
666,666,666 2/3 shares of Class C Common Stock.
(a) Each share of Class A, Class B and Class C Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights except that (i)
Expenses related to the distribution of each class of shares shall be borne
solely by such class; (ii) The bearing of such expenses solely by shares of
each class shall be appropriately reflected (in the manner determined by the
Board of Directors) in the net asset value, dividends, distribution and
liquidation rights of the shares of such class; (iii) The Class A Common
Stock shall be subject to a front-end sales load and a Rule 12b-1
distribution fee as determined by the Board of Directors from time to time;
(iv) The Class B Common Stock shall be subject to a contingent deferred
sales charge and a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time; and (v) The Class C Common Stock shall not be
subject to either an initial or a contingent deferred sales charge but shall
be subject to a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time. All shares of each particular class shall
represent an equal proportionate interest in that class, and each share of
any particular class shall be equal to each other share of that class.
(b) Each share of the Class B Common Stock of the Corporation shall be
converted automatically, and without any action or choice on the part of the
holder thereof, into shares (including fractions thereof) of the Class A
Common Stock of the Corporation (computed in the manner hereinafter
described), at the applicable net asset value of each Class, at the time of
the calculation of the net asset value of such Class B Common Stock at such
times, which may vary between shares originally issued for
B-1
<PAGE>
cash and shares purchased through the automatic reinvestment of dividends
and distributions with respect to Class B Common Stock, (each "Conversion
Date") determined by the Board of Directors in accordance with applicable
laws, rules, regulations and interpretations of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. and
pursuant to such procedures as may be established from time to time by the
Board of Directors and disclosed in the Corporation's then current
prospectus for such Class A and Class B Common Stock.
(c) The number of shares of the Class A Common Stock of the Corporation
into which a share of the Class B Common Stock is converted pursuant to
Paragraph (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 GOVERNMENT [INCOME] 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 Government [Income] Fund (the Fund)
and by Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
Class A shares issued by the Fund (Class A shares). Under the Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of front-end sales charges with respect to the sale of Class A shares. Under the
Plan, the Fund intends to pay to the Distributor, as compensation for its
services, a distribution and service fee with respect to Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class A shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses 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 apply 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 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 GOVERNMENT [INCOME] 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 Government [Income] Fund (the Fund)
and by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
Class B shares issued by the Fund (Class B shares). Under the Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of contingent deferred sales charges imposed with respect to certain repurchases
and redemptions of Class B shares. Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class B shares.
A majority of the Board of Directors of the Fund, including a majority who
are not "interested persons" of the Fund (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption of this Plan
will benefit the Fund and its shareholders. Expenditures under this Plan by the
Fund for Distribution Activities (defined below) are primarily intended to
result in the sale of Class B shares of the Fund within the meaning of paragraph
(a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses 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 1% per annum of the average daily net assets of the Class B
shares of the Fund up to $3 billion, .80 of 1% on the next $1 billion of
such net assets, and .50 of 1% of such net assets in excess of $4 billion
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
account executives of the Distributor and to broker-dealers and other
financial institutions which have selected dealer agreements with the
Distributor.
D-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 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.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less
than six years from the date of effectiveness of the Plan, such agreements
or reports, and for at least the first two years in an easily accessible
place.
Dated:
D-4
<PAGE>
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 GOVERNMENT PLUS 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 Domenick
Pugliese 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 Government Plus Fund held of record by the undersigned on
[ ], 1994 at the Special Meeting of Shareholders to be held on
[ ], 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 WITHHELD ALL NOMINEES WITHHELD THOSE LISTED ON BACK
To withhold authority for any individual nominee, please write name on back of
form.
Edward D. Beach
Delayne D. Gold
Harry A. Jacobs, Jr
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Thomas A Owens, Jr.
Richard A. Redeker
Stanley E. Shirk
2. To approve an amendment of the Fund's Articles of Incorporation to permit
a conversion feature for Class B Shares.
FOR AGAINST ABSTAIN
3. To approve an amended and restated Class A Distribution and Service Plan.
4. Not applicable to Class A Shareholders.
5. To approve an amendment of the Fund's investment restrictions to clarify
that collateral arrangements with respect to interest rate swap transactions,
reverse repurchase agreements and dollar roll transactions are not deemed to
be the issuance of a senior security or the pledge of assets.
6. To approve elimination of the Fund's investment restrictions regarding
restricted and illiquid securities.
7. 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.
8. 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.
9. To approve an amendment of the Fund's Articles of Incorporation to change
the name of the Fund to "Prudential Government Income Fund, Inc."
10. To ratify the selection by the Board of Directors of Deloitte & Touche as
independent accountants for the fiscal year ending February 28, 1995.
11. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shares of common stock of the Fund of record at the close of business on
[ ], 1994 are entitled to notice of and to vote at 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 GOVERNMENT PLUS FUND, INC.
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 Domenick
Pugliese 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 of Prudential Government Plus Fund held of record by the
undersigned on [ ],1994 at the Special Meeting of Shareholders
to be held on [ ], 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 WITHHELD ALL NOMINEES WITHHELD THOSE LISTED ON BACK
To withhold authority for any individual nominee, please write name on back of
form.
Edward D. Beach
Delayne D. Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Thomas A. Owens, Jr.
Richard A. Redeker
Stanley E. Shirk
2. To approve an amendment of the Fund's Articles of Incorporation to permit
a conversion feature for Class B Shares.
FOR AGAINST ABSTAIN
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 an amendment of the Fund's investment restrictions to clarify
that collateral arrangements with respect to interest rate swap transactions,
reverse repurchase agreements and dollar roll transactions are not deemed to
be the issuance of a senior security or the pledge of assets.
6. To approve elimination of the Fund's investment restrictions regarding
restricted and illiquid securities.
7. 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.
8. 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.
9. To approve an amendment of the Fund's Articles of Incorporation to change
the name of the Fund to "Prudential Government Income Fund, Inc."
10. To ratify the selection by the Board of Directors of Deloitte & Touche as
independent accountants for the fiscal year ending February 28, 1995.
11. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shares of common stock of the Fund of record at the close of business on
[ ], 1994 are entitled to notice of and to vote at 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)
